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7
Annual report and accounts 2017
Index
Strategic report
Introduction
At a glance
Chairman’s statement
Our market
Our business model
Our strategic priorities
Chief Executive’s review
In conversation with the Chief Executive
Measuring our performance
Financial review
Managing risk
Principal risks and uncertainties
Corporate responsibility
Directors’ report
Board of Directors
Corporate governance
Audit Committee report
Directors’ remuneration report
Other information
Financial statements
Consolidated income statement
Consolidated statement of
comprehensive income
Statements of change in equity
Balance sheets
Statements of cash flow
Notes to the financial statements
Group five-year financial summary
Independent auditors’ report
Shareholder information
Calendar
Advisers
1
2
3
4
5
6
10
14
16
17
24
26
28
30
32
35
39
61
65
65
66
67
68
69
102
103
109
109
Carpetright is Europe’s leading specialist retailer of floorcoverings
and beds in the domestic home improvement market.
Our primary business objective is to help customers transform
their homes with our products and services delivered through an
integrated multi-channel proposition.
Through this we will maximise value for our shareholders by
delivering long-term sustainable growth in earnings per share
and cash flow.
We’re honest and straightforward
We care about customers and colleagues
We make it easy
Details of our strategy, including a strategic update, can be found on pages 10 to 13 of this report.
This Strategic Report was
approved by the Board of Directors
on 26 June 2017 and was signed
on its behalf by Jeremy Sampson
– Company Secretary and
Legal Director.
More online
This report, along with our other
announcements and stakeholder
information, can be found on our
corporate website: carpetright.plc.uk
www.carpetright.plc.uk |
1
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report
At a glance
Strategic progress
– Year of significant operational change and
investment – strategic plan on track.
– Accelerated store refurbishment programme
with 47% of the UK estate trading under
the new brand identity by period end.
On track to complete remainder of UK
estate by end of 2018.
– Post-investment performance of refurbished
estate continues to be encouraging with like-
for-like sales up by 6.8% on average.
– Hard flooring category achieving double
digit sales growth as it benefits from greater
strategic focus.
– Focus on improving customer service
delivering stronger satisfaction metrics.
– Further progress made in reducing number
of underperforming stores:
– Net nine closures in the UK, reducing
the estate to 426 stores, a space reduction
of 1.9%.
– In Rest of Europe, store base increased
by a net one but trading space was reduced
by 2.8%.
– Rest of Europe refurbishment programme
has been extended to a further nine stores
following a successful trial.
Financial highlights
Group
– Group revenue increased to £457.6m
(2016: £456.8m).
– Underlying profit before tax of
£14.4m (2016: £18.3m), in line with
market expectations.
– Year-end net debt position of £9.8m
(2016: £1.1m) reflects investment in the
accelerated store refurbishment programme.
– Separately reported items of £13.5m
(2016: £5.5m), primarily related to
increased onerous lease cost provisions
on loss-making stores.
– Statutory profit before tax of £0.9m
(2016: £12.8m).
UK
– Significant improvement in performance in
the second half – re-establishing trading
momentum after a difficult first six months.
– Like-for-like sales in the second half increased
by 1.8% partially mitigating the decline of 2.8%
experienced in the first half, to give a full year
decline of 0.5% (2016: 2.8% growth).
– Underlying operating profit of £10.7m
(2016: £17.8m) with reduction reflecting
sterling depreciation impact and margin effect
of measures to address increased competition.
Rest of Europe
– Like-for-like sales growth of 2.5%
(2016: 4.8%).
– Improvement in underlying operating
profit to £5.7m (2016: £2.5m).
The financial period for 2017 represents the 52 weeks ended 29 April 2017. The comparative financial period for 2016 was the 52 weeks ended 30 April 2016.
The Group uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS, the definitions of these can be found
on page 70.
2
| Annual report and accounts 2017
Chairman’s statement
Results and dividend
Total revenue for the year ended
29 April 2017 increased by 0.2% to
£457.6m (2016: £456.8m), reflecting
further store closures as we continued
to rationalise our estate. In challenging
market conditions, UK like-for-like sales
declined by 0.5% with an increase of 2.5%
in the Rest of Europe. Underlying profit
before tax decreased by 21.3% to £14.4m
(2016: £18.3m). After the impact of
separately reported items, statutory profit
before tax was £0.9m (2016: £12.8m).
Underlying earnings per share decreased
to 16.4p (2016: 20.8p) and basic earnings
per share were 1.0p (2016: 14.9p).
The Board continue to prioritise the use of
cash for the acceleration of the strategy
by investing further in the existing store
estate, while also reducing the fixed
occupancy costs as quickly as possible.
As a result, it has taken the decision not
to pay a final dividend (2016: nil). Based
on our current outlook we do not expect
this position to change in the current
financial year.
The Board
The composition of the Board was
unchanged in the year. Much of our
time has been spent overseeing the
implementation of multiple strategic
initiatives and providing an appropriate
level of challenge to the executive on the
Group’s response to the tougher trading
conditions. Further details of the Board’s
work can be found in the Directors’ report
starting on page 30 of this Annual Report.
Our people
On behalf of the Board, I would like to
thank the more than 3,000 colleagues
working in our stores, distribution centre
and support offices for their hard work
and dedication across the year. Their
commitment to delivering outstanding
service to our customers is endorsed by
increased levels of customer satisfaction
as measured by our Net Promoter Score.
I am delighted that a significant number
of our colleagues now participate in our
SAYE share schemes, enabling them to
share in our future success.
Summary and outlook
In common with other retailers in the home
improvement sector in the UK, we have
experienced more challenging trading
conditions over recent months. We are
expecting the consumer environment to
remain equally testing in the year ahead
as the uncertainties created by the UK’s
decision to leave the EU persist. Delivering
a turnaround in these conditions is not
easy, but we continue to believe that the
strategic plan we are implementing will
ensure the business better capitalises
on its market leading position and
provides resilience against weaker
trading conditions.
While we cannot control external market
conditions, we have a wide-ranging
programme of self-help measures on
which to concentrate and we believe these
have significant potential to improve the
performance of the Group. I am confident
that these will deliver long-term profitable
growth for the benefit of our shareholders.
Bob Ivell
Chairman
www.carpetright.plc.uk |
3
Bob Ivell
Chairman
Overview
In a challenging year characterised by
both political and economic turbulence,
I am pleased to report that the Group
made good progress in implementing
the programme of strategic initiatives to
extend the appeal of the Carpetright brand
and to address the significant legacy
issues within its property estate. The
acceleration of the refurbishment
programme extended it to over 40% of
UK stores by year end, well ahead of the
original target, and is a great example of
the pace and energy the executive team
is bringing to these initiatives. Recent
evidence shows that retailers must adapt
to combat tougher trading conditions.
With this in mind, we know we
need to continue to innovate as we
strive to differentiate ourselves from
the competition.
While there is much left to do, we made
tangible progress across the year in
key areas such as product offering,
promotional effectiveness, brand
perception, store standards and customer
service. The strategic update on pages
6 to 16 provides more details on our
progress against our plan.
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Our market
Overview
Our market is highly fragmented, with
approximately 4,000 floorcoverings
businesses. Current estimates place the
UK market at £2.0bn per annum for the
calendar year to December 2017, placing
ourselves as the market leader with a
share of around 20%.
The nature of our product means that the
vast majority of customers prefer to visit
a store to make their purchase, to give
them the opportunity to see and touch
their choice of floorcovering. However,
the internet is playing an ever-increasing
role in pre-purchase behaviour, becoming
a vital research tool for many customers,
and the rapid growth of smart phone
and tablet use underlines the importance
of having an effective and integrated
digital proposition.
Product ranges
Whilst carpet remains the dominant
product category in floorcoverings, we
have historically over-indexed on carpet
product ranges relative to wider market
preferences. We are redressing this
bias by substantially extending our offer
in the hard flooring area to better reflect
consumer tastes.
In our UK business, beds provides an
important complementary revenue stream
to our core floorcoverings offer and we
believe this category has significant further
growth potential. The total beds and
bedding market is estimated at £3.2bn
and our market penetration, whilst low,
is growing steadily as we establish our
credentials in this competitive sector.
Macroeconomic indicators
The period of sustained economic
uncertainty has been especially
challenging for the floorcoverings
sector in the UK, with fragile consumer
confidence and shoppers deferring big
ticket purchases.
Whilst macroeconomic indicators in
Belgium remained fragile, the Netherlands
and the Republic of Ireland experienced
a recovery in market conditions with an
increase in reported consumer confidence
and encouraging economic benchmarks.
We see moving house as a key stimulant
of demand and a potential lead indicator
of activity in the home improvement sector.
Having grown steadily from 2013 to early
2015, UK housing transactions were then
relatively flat through to February 2016.
During this financial year transactions
have declined by around 10% to a monthly
average of 98,000 as at April 2017 down
from 109,000 in April 2016.
Consumer confidence
Consumer confidence, which has been
fragile for some time, remains a key
driver of our performance. During the
course of the financial year the average
level of consumer confidence was
-5, which compares to +2 in the prior
year comparative.
UK Floorcoverings market size1
GfK consumer confidence index2
2.5
2.0
1.5
1.0
0.5
0.0
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2.0
1.6
2.0
2.1
2.1
2.3
2.1
-1.0
2.0
-1.8
2013
2014
2015
2016
2017
10
5
0
-5
-10
%
e
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t
w
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-
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Y
10
5
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-5
-10
-15
-20
-25
-30
-35
-40
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c
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e
m
u
s
n
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C
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
UK floorcoverings market by category3
UK housing transactions
(rolling 12 months, over £40k)4
%
8
.
6
8
%
8
.
7
5
%
7
.
3
2
%
5
.
1
1
%
2
0
.
%
9
3
.
%
0
.
8
%
5
3
.
%
5
3
.
%
0
1
.
Carpet
Market
Wood
Laminate
Vinyl
Other
Carpetright
i
%
x
m
y
r
o
g
e
t
a
C
100
75
50
25
0
Sources:
1. GlobalData, 2. GfK, 3. Mintel, 4. HMRC
4
| Annual report and accounts 2017
s
n
o
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t
c
a
s
n
a
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T
160,000
140,000
120,000
100,000
80,000
60,000
40,000
%
40
30
20
10
0
-10
-20
-30
-40
-50
-60
%
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w
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g
r
a
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y
-
n
o
-
r
a
e
Y
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Rolling 12 month total transactions
Growth rate
Our business model
We want to help our customers transform their homes. We will achieve this by delivering our
products and services and in doing so create value for our customers, our shareholders, our
colleagues and our suppliers.
Our customers
The journey starts
by understanding
our customers’ needs
Confidence in dealing with a retailer
who provides an enjoyable shopping
experience, has a good reputation and
in whom they can trust
We meet those needs
every step of the way
We achieve this by
delivering on our strategy
We are honest and straightforward
and we care about customers
and colleagues
Who we are: We are working hard to
transform our brand, culture, values
and corporate identity
See p6 for more information
Offers a great range of floorcoverings to
choose from within their budget
We provide inspirational ranges, across
the spectrum of product categories,
that meet customers’ needs
What we sell: We are broadening
our total floorcovering range to meet
customer demand
See p7 for more information
Understand the value and quality of
service they expect
We offer compelling value and easy
payment methods alongside services
that make selecting and installing new
flooring an easy, pain-free process
How we sell: We are embedding
product training, customer service
standards, interest free credit and
a host of other initiatives
Recognise that convenience and
accessibility play a role
We operate national networks of
stores, in each of the countries we
trade, supported by country-specific
transactional websites
See p8 for more information
Where we sell: We are repositioning
our stores estate, allowing customers
to access our products in a
contemporary and welcoming
retail environment
See p9 for more information
Value creation
Customers
Colleagues
Shareholders
Suppliers
We transform our
customers’ homes with
high quality, inspirational
products and great value
We provide a rewarding
work environment which
is fair, open, and provides
opportunities to develop
We are re-building the
business to deliver long-
term growth for the benefit
of our shareholders
We work collaboratively
to bring great products to
market
www.carpetright.plc.uk |
5
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Our strategic priorities
Who we are
Our stores, the brand and our people
read more about our strategy on pages 10 to 13
Achievements in 2017
– Refurbished 160 stores in the UK
– Refurbished nine stores in the
Netherlands and Belgium
– Recruited Lucy Alexander as
Brand Ambassador
– Secured “Which? Trusted Trader”
status for our recommended fitters
– Introduced a new colleague uniform
– Launched ‘Fuse’ – internal training
and communication tool
– Rebadged the transport fleet
with new brand livery
Objectives for 2018
– Refurbish a further 70 stores
in the UK
– Refurbish a further 20 stores
in the Netherlands and Belgium
– Launch a Carpetright Store
Managers’ Academy
6
| Annual report and accounts 2017
What we sell
An unrivalled choice of floorcoverings
Achievements in 2017
– Extended the ‘House Beautiful’
exclusive range
– Achieved double digit growth in
laminate, LVT and engineered wood
– Re-introduced curtains and blinds
to the Netherlands and Belgium
Kahrs Unity
Park Wood
Flooring
Kahrs Artisan
Collection Oak
Rye Wood
Flooring
Kahrs Oak
Chevron Light
Grey Wood
Flooring
Objectives for 2018
– Launch new collection of exclusive
products under the ‘Country Living’ brand
– Extend hard flooring merchandising
units to more stores
– Step change the sales contribution of beds
through re-ranging and re-merchandising
– Launch a range of artificial grass in the UK
– New range of underlays, exclusive
to Carpetright
– Launch an extended range of premium
accessories, branded ‘Finishing Touches’
www.carpetright.plc.uk |
7
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Our strategic priorities
How we sell
Making the process easy with
unbeatable value
Achievements in 2017
– Increased the Net Promoter Score
from 71% to 75%
– Increased the sales penetration of
interest free credit
– Introduced ‘uplift & disposal’
service nationwide in the UK
– Retrained all our UK Home Flooring
Surveyors, investing in technology to
improve the customer experience
– Increased the average transaction
value by 11%
Objectives for 2018
– Developed ‘Fuse’ to robustly deliver
selling skills to improve the consistency
of the customer experience
– Improve the customer service metrics
across stores, surveyors and fitters
– Upgrade all hardware and networks
in the stores in the Netherlands and Belgium
– Introduce and integrated customer
relationship management system in the UK
8
| Annual report and accounts 2017
Where we sell
Multi-channel convenience and improving
the quality of the store portfolio
Achievements in 2017
– In UK, opened 8 new and closed
17 underperforming stores
– In the Netherlands and Belgium,
opened 6 and closed 5
underperforming stores
– Achieved online sales growth
of 74%
– Introduced online ‘visualiser’
– Enabled facility for customers to buy
online using interest free credit
– Introduced functionality for customers
to be able to book a surveyor visit
to their home online
Objectives for 2018
– Exit lease liabilities of a further 20
underperforming stores in the UK
– Introduce the functionality to
enable customers to pay outstanding
balances online
www.carpetright.plc.uk |
9
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Chief Executive’s review
As we move into the third year of our
transformation of Carpetright, we are
maintaining the consistency of our
strategic direction which has been to
focus exclusively on:
– Who we are – our stores, the brand
and our people
– What we sell – an unrivalled choice
of floorcoverings
– How we sell – making the process
easy with unbeatable value
– Where we sell – multi-channel
convenience and improving the quality
of the store portfolio
This proven strategy is supported by
clear, uncomplicated principles that
are applied consistently throughout the
business, specifically:
– We are honest and straightforward
– We care about customers and
colleagues
– We make it easy
We review the progress made across the
year in each area of strategic focus in the
following sections:
Who we are
Our principles are the essence of
our Group-wide ‘We are Carpetright’
initiative, which is driving cultural change
throughout the business with the aim
of updating customers’ perceptions of
the brand. This work is central to our
success, as we modernise the store estate
and the way we do things around here.
Refurbishment of the store estate and
introduction of our new branding and
store-fit was a major focus during the year.
By the end of April 2017, we had 199
stores in the UK trading under the new
brand identity, some 47% of the estate,
completing 160 refurbishments during
the year, more than our original target
having accelerated the programme twice
in the course of the period. This work
ranged from introducing new signage
and a sample area for carpet in stores
that make a smaller profit, through
to full refurbishment of larger, highly
profitable stores, or stores where we
are tackling new competition. In these
latter two cases, the introduction of
our new ‘Graphite’ store-fit is proving
highly successful in regenerating sales
growth. As a group, refurbished stores
delivered like-for-like sales growth of
6.8% in the final quarter of the year,
markedly higher than the un-invested
estate (Including stores refurbished
expressly to meet new competition this
figure would be 5.0% growth). This gives
us confidence to press ahead with the
investment programme. We are aiming
to have completed the remainder of the
UK estate with some form of additional
investment (at a minimum, re-branding
with the new identity) by December 2018.
We have a similar programme underway
to address the un-invested estate in the
Netherlands and Belgium. As at the
end of April 2017, we had refurbished
an initial nine stores and they have
achieved excellent sales growth post-
refurbishment. We see this as a
significant opportunity to increase share
and profitability and are in the process
of refurbishing a further twelve stores by
the end of July 2017. If we can achieve
similar levels of sales growth, we will look
to accelerate the programme across the
remaining stores in the Netherlands and
Belgium during the coming months.
Further improving our reputation and
being readily identified as a brand that
customers can trust is vital to Carpetright’s
future success. Our recruitment of
Lucy Alexander, previously a presenter
on BBC TV’s cult home improvement
programme ‘Homes under the Hammer’,
as Carpetright Brand Ambassador in the
summer of 2016 has been a key initiative
in this area. We have supported this
move with extensive brand sponsorship
on UKTV featuring Lucy, who is a credible
home improvement personality. Customer
research shows this activity is yielding
positive results on brand metrics such
as awareness, trust and consideration.
Equally, Carpetright achieving
‘Which? Trusted Trader’ status for our
recommended fitting service is another
important element to improving brand
perception and ‘Making it Easy’. This
standard gives potential customers the
comfort that the final and most important
Wilf Walsh
Chief Executive
“The way we train, communicate
and reward our frontline staff
remains a key priority in making
sure we are the first choice for
the floorcoverings consumer,
every time.”
10 | Annual report and accounts 2017
part of the customer journey, the fitting,
and that “ta da” moment, is going to
be carried out by carefully selected and
properly assessed trades people. ‘Who we
are’ also incorporates our new colleague
uniform which was successfully rolled out
last year to give teams a comfortable,
contemporary identity.
It also covers our culture and the way
we train and talk with our colleagues.
To this end we have introduced ‘Fuse’,
which is a brand new internal training and
communications tool, built around a single
platform for mobile, social and programme
learning and development as well as
internal communications. The training
element covers everything from “the
basics”, through product knowledge,
as well as customer service and selling
skills. It is also a tool to encourage
ongoing management development and
Fuse will be at the heart of our launch of a
Carpetright Managers’ Academy in 2017.
Video based communication offers a
much more dynamic live update for store
colleagues. The ‘Staff Room’ element on
Fuse allows for open feedback from staff
that will help us improve, by being honest
and straightforward with each other and
accepting of constructive criticism.
What we sell
The floorcoverings market does not stand
still. Through market research we know
consumer tastes are changing and they
tell us what they want to buy for their
home. The UK market is currently split
60/40 on carpets versus hard flooring,
while Carpetright, because of its heritage,
has a split of 90/10 in favour of carpet.
Our move over recent years to increase
our share of the hard flooring market
is already well documented. We have
enjoyed particularly good growth in hard
flooring as we have introduced ranges
into all of our stores, with a clear product
and price architecture, for customers from
budget spend right through to £100 per
square metre and over, with sufficient
cross-over between categories to allow
customers to trade up if they choose:
– Vinyl – from roll stock, for the take
away and DIY market, to premium
quality sample vinyl which is specifically
ordered for professional fitting;
– Laminate – again in the budget, DIY
take away form or in a new range of
sampled product for third party fitting;
– Luxury Vinyl Tile (LVT) has now been
introduced across the estate, becoming
our fastest growing category (albeit
from a low base), offering customers
the natural look of wood or stone but
with the features and benefits of easy
to maintain vinyl; and
– Engineered Wood – a superior and
more stable product than traditional
solid wood, supplied to us by Kahrs,
the leading Swedish supplier of
environmentally friendly and sustainable
flooring products.
In carpet, we continue to strengthen our
range authority as market leader, with
a focus on all budgets, from £2.99 per
square metre roll stock in our ‘Essentials’
range through to outstanding quality wool
carpets from British manufacturers such
as Westex, Brintons and Ulster.
We have identified an opportunity to create
exclusives that allow for differentiation
of Carpetright versus the independent
sector and our national competitors. In
this space the ‘House Beautiful Collection’
has been an outstanding success with
the recent addition of a new velvet-
style polyamide twist. Exclusive ranges
accounted for 3.2% of sales in the final
quarter of the year, up from 1.9% in the
comparable prior year period.
www.carpetright.plc.uk |
11
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Chief Executive’s review continued
We will be launching a new collection
of products under the popular and well
recognised ‘Country Living’ brand before
the end of 2017 in collaboration with this
leading lifestyle magazine.
Our buying team has also begun to take
a more creative and proactive approach
to anticipating interiors fashion trends,
with the introduction of more design-
led products that customers currently
favour, including more bright colour
options alongside blue, blush tones
and dusty pastels.
In the UK, we began selling beds in 2009
and the business has grown to represent
9.2% of total sales, with beds being
merchandised in 253 of our stores. Whilst
we have delivered sales growth in the year,
we believe a significant opportunity exists
to grow this category faster. Through a
programme of significant re-ranging and
merchandising, supported by additional
training, we are confident of delivering a
step change in the sales contribution from
the bed category, starting in the current
financial year.
In the Netherlands and Belgium, we have
re-introduced a range of curtains and
blinds. This range is now available in 88
stores and represented 4.7% of the total
sales mix by the end of the financial year.
How we sell
As part of our plan to keep it simple,
the performance of our store colleagues
is measured on a small number of
straightforward KPIs designed to increase
the quality of the sale, both in terms of
customer service and value. The success
of this programme is demonstrated by our
average transaction values, which grew by
11% in the year.
As a simple guide, where a store team
delivers 15% or more interest free
credit participation, 50% plus underlay
penetration and 75% or more “highly
satisfied” responses under ‘Do We
Measure Up?’ surveys, they can, on
average, expect to deliver like-for-like sales
growth 3% ahead of the total UK estate.
As always, our biggest challenge is
achieving consistency and narrowing
variance between the very best
12 | Annual report and accounts 2017
performing stores and under-performing
units. Customer service is central to this
effort, to ensure we deliver an enviable
reputation for service in what is, potentially,
a lengthy customer journey with lots of
moving parts. Our Net Promoter Score
has improved significantly to 75% from
71% across the year. As it stands, 96%
of our customers are at least “satisfied”,
as are 91% who experience our Home
Flooring Surveyors and 85% of those who
deal with recommended fitters. We remain
focused on driving these metrics higher,
particularly those in the latter area where
we should be getting higher scores.
In simple terms, “highly satisfied”
customers spend 3.4 times more on
average and are significantly more likely
to recommend Carpetright.
Across the Group, customer needs and
technology changes are continuing to
drive the need to deliver a fully integrated
omnichannel shopping experience.
We plan to invest in technology that
enables our customers to interact with
us throughout their buying journey on
any device or physical outlet; uses
information to make decisions easy
for the customer; delivers a simple
environment for our colleagues with
the right tools; and establishes robust
data security and controls. In 2016, we
invested in upgrading our store hardware
and networks in the UK and are now
extending this to the Netherlands and
Belgium. We will also be implementing
an integrated customer relationship
management system in the UK within
the next twelve months.
Where we sell
In Carpetright we have too many stores
on too many unsustainable long leases
that severely impact our overall profitability.
We continue to address this challenge
with vigour.
In the UK, the last twelve months was
another year of progress as we opened
eight stores, closed 17, including three
relocations, to leave a total of 426 stores
(2016: 435 stores). The new stores,
opened in areas where we have long been
under-represented, including Bath, Leeds
and Liverpool, and have all delivered
encouraging initial performances. As a
result, we now trade from 3,691,000 sq ft
of retail space in the UK (2016: 3,763,000
sq ft), a 1.9% reduction year-on-year.
Our progress in the last five years on
improving the quality of our UK store
estate and reducing overall store numbers
has been significant and we aim to have
reduced the total to below 400 stores by
this time next year. Where we close or
downsize stores, we are almost always
able to redeploy existing staff locally.
We continue to take a robust view at lease
renewal, which provides the opportunity
to secure lower rents for future years.
Within the next five years 48% of the UK
estate has a lease renewal scheduled,
providing further opportunity to reduce
the fixed store operating costs or to exit
underperforming stores. As at April 2017,
the average length of lease had fallen to
5.5 years (2016: 6.3 years).
In the Rest of Europe, we opened
six stores and closed five, including
four relocations during the year, to
leave a total of 138 stores (2016: 137
stores). Consequently, we now trade
from 1,360,000 sq ft of retail space
(2016: 1,387,000 sq ft), a 2.0%
reduction year-on-year. In line with
the UK activity, discussions are being
held with landlords in respect of lease
renewals and this process is delivering
rental reductions. The potential to
secure reductions is generally dictated
by the average length of lease remaining;
with this being 2.8 years (2016: 2.6
years) in the Netherlands and 1.8 years
(2016: 2.3 years) in Belgium. In the
Republic of Ireland this period is 8.1 years
(2016: 9.1 years), reflecting the agreement
of long-term deals during the expansion
into this market in the period from 2001
to 2008.
Our progress in this area is delivering
an improvement in profitability. Whilst
this activity can incur a cash cost to exit
leases, either by assigning to new tenants
or returning the property to landlords,
by taking this robust approach we are
confident we are getting an acceptable
financial return.
may well become a more difficult trading
environment, with ongoing uncertainty
over consumer spending and inflationary
pressures. We are confident that whatever
the external environment we can increase
our market share.
After a testing twelve months not lacking
in excitement, I am grateful to the Board
for their support and counsel and my
thanks of course go to everyone in the
store support offices in both Purfleet
and Utrecht as well as our Regional and
Divisional Managers across Europe.
My admiration for our store managers
and sales colleagues who serve the
customer day in, day out knows no
bounds. Everyone in the store support
offices does an ‘in-store day’ once a
year, normally during the relatively quiet
December period when we can cause
least havoc. Whether our sales colleagues
are in Edinburgh, Salford, Exeter,
Rotterdam, Bruges or Cork, they are all
doing a demanding job and I am grateful
for their hard work and dedication.
Our ongoing change of culture is still
very much in the early stages but the
way we train, communicate and reward
our frontline staff remains a key priority
in making sure we are the first choice for
the floorcoverings consumer, every time.
We are Carpetright.
Wilf Walsh
Chief Executive
We are also acutely aware of the growing
impact of digital on our business, both
now and in the medium term. Sales,
where the customer journey originated
online, increased by 13.4% during the
year, along with sample and appointment
requests up around 20%. Over the past
twelve months we have seen visits to the
website increase by 14%, a reduction in
our bounce rate due to improvements in
the design, and pure online sales increase
by 74%. Website revenue is now the
equivalent of a top turnover store.
Initiatives delivered during the year include:
– introducing the Carpetright ‘Visualiser’,
giving the customer the opportunity to
upload photos of their rooms and see
how their choice of new floorcovering
will enhance them by trying different
product across our extensive ranges;
– blogs designed to enhance consumer
knowledge including decorating tips
and trends with Diana Civil, a leading
interior stylist;
– practical videos on how to choose
products, measure a room, stain
removal and other tips to enhance
our authority as market leaders in
the sector;
– online guide with Lucy Alexander as to
how we make it “easy with every step”;
– ability to book a visit with our Home
Flooring Surveyors online; and
– ability to pay for products online using
interest free credit
Competition
The floorcoverings market in the UK
has long been a highly competitive
environment, with the Group facing
competition from a vibrant independent
sector and from a number of national and
regional floorcoverings retailers. However,
competition intensified significantly during
the year when a new national competitor
rolled out an aggressive store opening
programme and a number of smaller
players also began competing more
actively at a local level.
Our strategy in response to competitor
activity is simple and it applies in a variety
of locations, specifically:
– we refurbish our store with our new
‘Graphite’ shop fit, effectively minimising
the potential of any negative store
environment factor;
– we ensure the team are appropriately
resourced for taking on the challenge of
a new competitor; and
– we introduce enhanced
local promotions.
While this impacted our profit
performance, we firmly believe that the
cost to the business of failing to meet
the competitive challenge would be
considerably greater.
Significantly, while a new competitor
inevitably steals some sales in the first year
of operation, once we anniversary their
store opening we are seeing like-for-like
sales growth well ahead of the main
estate. We believe that this encouraging
performance demonstrates that the action
we are taking is working.
Summary
Our primary external challenges over the
past year were two-fold. First, the UK’s
decision to exit the European Union on
23 June 2016, saw Sterling depreciate
dramatically against the Euro. Along with
our competitors, this eventually made it
necessary to raise some prices and we
were able to mitigate this unexpected
development in the second half of the year.
Second, as discussed above, a new
entrant came to the market with an
aggressive store opening programme,
to which we are responding robustly.
Against this backdrop, we will not be
diverted from our plan to transform the
Carpetright business. The four main
planks of our strategy remain valid and
cover all elements of the customer
journey as well as tackling our legacy
property issues. Responding to intensified
competition has sharpened us up and
we are relishing the challenge in what
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13
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
In conversation with the Chief Executive
What is your view of the
Group’s performance in
the year?
Whilst the dramatic depreciation of
Sterling, and the intensified competitive
pressures have made it a challenging
period for the UK business, we have made
continued progress in the turnaround in
the Rest of Europe. The combined result
has been a decline in overall profitability
which indicates it has been a tough year.
That said, we have a clear plan with a
robust set of actions which I think will
mitigate some very serious headwinds
which most retailers are feeling right now.
It’s two years since you
launched the new strategy
– how much progress has
been made?
We are absolutely in the thick of it but
we are making real progress. We have
re-engineered virtually every aspect of
the business: from the look and feel of
the brand; the concerted move into hard
flooring where we under-index versus
the market; and the drive to improve our
reputation and customer service. If you
add in the number of shops that we have
refurbished, re-sited, re-sized, or closed
in the period, along with re-shaping our
digital offer, it is easy to underestimate
the size of the task that the team
has undertaken.
Is the business where you
planned for it to be at this point?
Not quite in terms of profit delivery for
the reasons I outline above – but yes, in
terms of confirming a very clear strategic
direction and our progress with the
operational turnaround.
How much further is there
to go with the plan?
We are barely half way through is my
considered judgment. We need to
rebrand the entire estate and become
famous for hard flooring and floorcoverings
in general, not just carpet. We need to
ensure our improved customer service
gets even better and we have to keep
our focus on reducing store numbers and
improving the quality of our estate. The
good news is that a lot of these initiatives
are within our gift and are best described
as “self help”.
What’s worked best so far
and which areas are proving
more difficult?
I think we have made very good progress
in the four main areas of who we are,
what we sell, how we sell and where
we sell. We have obviously had to
prioritise individual activities as trying
to land them all overnight is a practical
impossibility. Culture change is also
something that has had to evolve over
time – when practice becomes ingrained
over an extended period of time, people
can become institutionalised and resistant
to change and addressing that has been
the biggest challenge.
“We have a clear plan with a robust set of actions
which I think will mitigate some very serious headwinds
which most retailers are feeling right now.”
14 | Annual report and accounts 2017
Has Brexit de-railed your
recovery plans?
No – although it slowed up the first half
considerably as Sterling depreciated
significantly. We mitigated this in the
second half through price increases
and renegotiating with suppliers. The
future and how Brexit will look is still
very uncertain indeed but that applies
to the whole sector where we and our
competitors operate.
What criteria should we use
to judge the Group’s progress
this year?
It’s all about momentum and assessing
whether or not the business is focusing
on the right things. For me, it’s about the
quality of transaction and to that end it’s
gratifying to see our Average Transaction
Value increase by 11% in the year. This
is driven by the instore KPI’s and should
give investors confidence that we are
concentrating on the important stuff
whatever the market conditions.
What underpins your
confidence that the Group
is on the right track?
Not chopping and changing what
is a solid strategic plan is key. And
having supportive shareholders who
understand the retail landscape, agree
with our initiatives and are cognisant
of the competitive threats gives us
confidence that we are firmly on the
right track.
Do you have any evidence
that consumers are now
beginning to re-appraise the
Carpetright brand?
As I discuss in my statement, the
measurements from our market research,
in particular the Brand Tracker work,
indicates a very positive reappraisal of
the Carpetright brand – this isn’t a case
of “hitting and hoping”. It remains vital
work-in-progress.
“By doing the things within our control better,
day-in day-out, we can take market share from our
competitors and that, in essence, is the plan.”
The Rest of Europe
businesses continue to
recover – will we see you
invest in a store refurbishment
roll out in these markets as
you have in the UK?
Absolutely, as I mention in my review the
team in Utrecht has done an excellent
job in reformatting some units that hadn’t
had any investment since the business
was acquired in 2002. The Netherlands
especially will see us increase capital
spend in the coming twelve months.
What are your priorities for the
year ahead?
“Sticking with the knitting” is the term,
so doing the same things – only better.
Where do you see Carpetright
at the end of 2018?
An improved performance, with a profit
growth and increasing market share,
especially in hard flooring, whatever
the economic conditions.
Wilf Walsh
Chief Executive
The outlook for the UK
consumer looks more
uncertain – do the self-help
measures being taken have
enough potential for you to
drive improved performance
even if times in retail get
tougher?
Undoubtedly – we cannot do anything
about the economy, what Government
in its infinite wisdom throws at us or
consumer confidence. By doing the things
within our control better, day-in day-out
we can take market share from our
competitors and that, in essence, is the
plan. I would not want to be a new entrant
in a market such as this.
How are the rebranded/
refurbished stores performing
– are they meeting your
expectations?
Great – we’re very pleased with their
performance. We discuss the numbers
in detail in my review but in summary
we are hitting our targets on sales and
return on investment. Clearly where we
are up against a new competitor that
refurbishment work is primarily focused
on mitigating the negative effect they can
have on us.
Are you maintaining the sales
uplift as you work your way
through the estate?
Carpetright has been in a nonsensical
situation where in too many locations
we had two Carpetright stores trading
within close proximity to each other –
total madness. Where we close one
store the model sees us lose the two
main costs, namely establishment (rent
and rates) and people (who we nearly
always reintegrate somewhere else in the
region). We also see a sales transfer of
around 40% to the remaining store and
hey presto – you are actually now making
a profit. Old fashioned, I know.
You will soon be approaching
the point where half the UK
store estate has been
refurbished – should we see
that as the tipping point?
Not really – the “tipping point” is when we
see at least 75% of the units hitting their
in-store KPIs that drive like-for-like sales
relentlessly. You can spend a load of
money to dress a store up beautifully but
unless the people inside are dedicated to
great service then you will not see a return.
Should we expect more store
closures this year? How
many stores do you see the
UK having ideally?
We are at 426 stores – we are aiming to
be below 400 in the UK this time next
year. I don’t have an ideal number, if
the stores are making a contribution
we want to keep them. The numbers
in the Netherlands and Belgium are
about right – it’s just improving their look
and performance.
Reducing property costs is a
critical part of the strategy –
how much progress was
made in the year?
We closed 22 shops, including 7
relocations, thereby reducing our rent
and rates bill. But there’s more to do and
we’re very focused on this.
Are you looking to accelerate
the property disposal
programme this year?
Yes, but we will have to overcome
significant landlord inertia. We are
offering significant premiums to get out
of unprofitable sites but when they have
a tenant with a strong covenant, paying
the rent on time every month – on a lease
that has ten years to run – they don’t
appear to have the appetite to find another
tenant. I find this a rather odd call.
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15
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Measuring our performance
The Board of Directors and senior management receive a wide range of management information delivered in a timely manner. Listed
below are the principal measures that are reviewed on a regular basis to monitor the performance of the Group.
Gross profit
percentage
Definition
Gross profit as a percentage
of revenue (calculated in
local currency).
Like-for-like sales
% growth
Definition
Calculated as this year’s sales
divided by last year’s sales
for all stores that are at least
twelve months old at the
beginning of the financial year.
Stores closed during the year
are excluded from both years
(calculated in local currency).
Net Promoter Score
(NPS)
Operating cash flow
Definition
Definition
Net Promoter Score (NPS) is
a measure of a customer’s
willingness to recommend
our service to others in terms
of Satisfaction and Loyalty
calculated by subtracting the
percentage of Detractors from
the percentage of Promoters.
This measure is determined
by taking underlying operating
profit and adding back
non-cash items and any
movements in working capital.
Rationale
Rationale
Rationale
Rationale
Customer Satisfaction
and Loyalty are important
indicators of the success, or
not, of the Customer Journey,
our colleague interaction and
our range of products
and services.
The Group’s ability to finance
its future investment, pay
corporation taxes, pay interest
on its borrowings and make
returns to shareholders is
aided by strong cash flows
from its operations.
Performance
UK (%)
100
90
80
70
60
50
74.1%
71.0%
2016 2017
Group (£m)
30
25
20
15
10
5
0
25.1m
17.4m
11.3m
13.3m
7.7m
2013 2014 2015 2016 2017
Maximising like-for-like
sales opportunities drives
cash inflow. This KPI also
measures the health of
our core retail estate and
reflects customer reaction
to our products, proposition
and price.
Gross profit is an important
indicator of the Group’s
financial performance. It
reflects our ability to source
effectively, run an efficient
supply chain, and promote
and deliver the correct mix
of products to maximise
cash margin.
Performance
UK (%)
Performance
UK (%)
10
8
6
4
2
0
-2
7.3%
2.2%
2.8%
-0.2%
-0.5%
2013 2014 2015 2016 2017
65
63
61
59
57
55
62.5%
61.5%
61.4%
60.7%
59.2%
2013 2014 2015 2016 2017
Rest of Europe (%)
Rest of Europe (%)
6
4
2
0
-2
-4
-6
-8
-10
-12
4.8%
2.5%
-11% -8.6% 0.3%
2013 2014 2015 2016 2017
65
60
55
50
59.5%
57.2%56.7%
57.2%
56.1%
2013 2014 2015 2016 2017
16 | Annual report and accounts 2017
Financial review
Neil Page
Chief Financial Officer
Overview
Total Group revenue for the year increased by 0.2% to £457.6m, consisting of a decline
in the UK business of 2.6% offset by an increase of 16.4% in the Rest of Europe, with
the latter impacted by foreign exchange rate movements. Our continued focus on
rationalising and repositioning the store portfolio saw the Group open 14 stores and
close 22 during the year, which gave a net decrease of eight stores, including seven
relocations. The total store base numbered 564 at year end (2016: 572), with total store
space declining by 1.9% to 5.1 million square feet during the period.
Group underlying operating profit decreased by 19.2% to £16.4m (2016: £20.3m),
reflecting the impact of the significant depreciation of sterling during the first half of
the year and the costs of measures to address intensified competition. This impacted
sales and margin rate in the UK, but was partially offset by the benefit from closing
underperforming stores, and a strengthening performance in our Rest of Europe
business. Net finance charges were level with the prior year at £2.0m. These factors
combined to generate underlying profit before tax of £14.4m (2016: £18.3m), a 21.3%
decrease on the prior year.
Separately reported items totalled £13.5m (2016: £5.5m), primarily costs associated with
rationalising the store estate and a re-assessment of provisions held for onerous lease
costs for loss-making stores following a strategic review of the portfolio.
When separately reported items are included, the statutory measure of profit before
tax for the Group was £0.9m (2016: £12.8m) and basic earnings per share of 1.0p
(2016: 14.9p).
The Group ended the year with net debt of £9.8m (2016: £1.1m), reflecting an
acceleration of the store refurbishment programme and the cash costs of rationalising
the store portfolio.
Revenue
Underlying operating profit
Net finance charges
Underlying profit before tax
Separately reported items
Profit before tax
Earnings per share (pence)
underlying
basic
Operating cash flow
Net debt
2017
£m
457.6
16.4
(2.0)
14.4
(13.5)
0.9
16.4p
1.0p
7.7
(9.8)
2016
£m
456.8
20.3
(2.0)
18.3
(5.5)
12.8
20.8p
14.9p
13.3
(1.1)
Change
0.2%
(19.2%)
0.0%
(21.3%)
(145.5%)
(93.0%)
(21.2%)
(93.3%)
(42.1%)
(8.7)
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Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Financial review continued
UK – Performance review
The key financial results for the UK were:
Revenue
Like-for-like sales
Gross profit
Gross profit %
Costs
Costs %
Underlying operating profit
Underlying operating profit %
The UK portfolio is now as follows:
Standalone
Concessions
Total
2017
£m
381.0
(0.5%)
225.6
59.2%
(214.9)
56.4%
10.7
2.8%
2016
£m
391.0
2.8%
237.3
60.7%
(219.5)
56.1%
17.8
4.6%
Change
(2.6%)
(4.9%)
(1.5ppts)
2.1%
(0.3ppts)
(39.9%)
(1.8ppts)
Store numbers
Sq ft ('000)
30 April 2016
420
15
435
Openings
8
0
8
Closures
(14)
(3)
(17)
29 April 2017
414
12
426
30 April 2016
3,734
29
3,763
29 April 2017
3,669
22
3,691
In tough trading conditions, like-for-like sales in the second half of the year increased by 1.8% partially mitigating the decline of 2.9%
experienced in the first half, to give a full year decline of 0.5%.
We opened eight stores and closed 17 stores during the period, including three relocations. This translated into a net space decline
of 72,000 sq ft, a decrease of 1.9%. At period end there were 253 stores trading with a bed department (2016: 246). Sales within the
beds category now represent 9.2% of the sales mix (2016: 9.0%).
Gross profit decreased by £11.7m to £225.6m, representing 59.2% of sales, a decrease of 150 basis points. This decline in margin
rate reflects a combination of:
– adverse impact of 210 bps from the fall in Sterling to Euro exchange rate on imported goods for resale. The average EUR/GBP rate
in 2017 was 12% lower at €1.20 (2016: €1.36);
– measures to address intensified competition including a ‘free fitting’ offer in selected stores, an adverse impact of 60bps;
– a dilutive impact of 30bps from product categories which attract lower average gross margins; and
– a favourable impact of 150bps from the improvement in underlying floorcovering margin through improved sourcing, promotional
planning and selected price increases.
The total UK cost base decreased by 2.1% compared with the prior year to £214.9m (2016: £219.5m). Costs as a percentage of sales
were 56.4%, a marginal uplift from 56.1% in the prior year, reflecting the operational gearing of the business. The movement in costs
was a combination of:
– store payroll costs decreased by £1.7m to £59.7m (2016: £61.4m) owing to a reduction in headcount from store closures, combined
with a decline in sales commission and bonus costs from the fall in sales;
– store occupancy costs (rent, rates, other & depreciation) decreased by 1.0% to £115.2m (2016: £116.4m), primarily the impact of
the store closures, offset in part by an increase in depreciation from the refurbishment programme; and
– marketing and central support costs decreased by 4.1% to £40.0m (2016: £41.7m), primarily the result of lower performance related
cost, partially offset by higher advertising costs.
The combination of the above factors resulted in underlying operating profit decreasing by 39.9% to £10.7m.
18 | Annual report and accounts 2017
Rest of Europe – Performance review
The key financial results for the Rest of Europe were:
Revenue
Like-for-like sales
Gross profit
Gross profit %
Costs
Costs %
Underlying operating profit
Underlying operating profit %
2017
£m
76.6
2.5%
43.8
57.2%
(38.1)
49.7%
5.7
7.4%
2016
£m
65.8
4.8%
36.9
56.1%
(34.4)
52.3%
2.5
3.8%
Change
(Reported
currency)
16.4%
18.7%
1.1ppts
(10.8%)
2.5ppts
128.0%
3.6ppts
Change
(Local
currency)
2.0%
3.9%
2.8%
98.5%
The Rest of Europe portfolio is now as follows:
Netherlands
Belgium
Republic of Ireland
Total
Store numbers
30 April 2016
93
23
21
137
Openings
5
1
0
6
Closures
(4)
(1)
0
(5)
29 April 2017
94
23
21
138
Sq ft ('000)
30 April 2016
985
245
157
1,387
29 April 2017
975
228
157
1,360
Macroeconomic indicators for our markets in Belgium and the Republic of Ireland remained fragile throughout the year, however,
the Netherlands experienced a recovery in market conditions with an increase in reported consumer confidence and encouraging
economic indicators, such as the number of housing transactions, fuelling demand.
In local currency terms, the three businesses combined to produce an increase in revenue of 2.0% on the prior year. The combined
like-for-like sales increased by 2.5%. A contributor to growth has been the re-introduction of a curtains & blinds offer into the
Netherlands and Belgium. After exchange rate movements, total revenue increased by 16.4% in reported currency.
The number of stores increased by one during the year, having opened six and closed five during the period, including four relocations.
The associated trading space reduced by 2.0%.
Gross profit percentage increased 110 basis points to 57.2%, resulting principally from improved supplier terms and non-recurring
clearance activity in the prior year, offset in part by investment in promotions to drive top line sales volumes and the impact of growth
in lower margin product categories. The combination of volume and rate improvements led to cash gross profit in local currency terms
increasing by 3.9%. After taking into account exchange rate movements this resulted in an increase of 18.7% in reported currency.
Operating costs in local currency reduced by 2.8%, primarily the result of reduced occupancy costs related to the downsizing and
relocating stores. This was reflected in the decline in the costs as a percentage of sales to 49.7%, a reduction on the prior year figure
of 52.3%. In reported currency, costs increased by 10.8% to £38.1m.
The net result was a year-on-year improvement in underlying operating profit of 98.5% in local currency, which translated to an increase
of 128.0% in reported currency of £3.2m to £5.7m (2016: £2.5m).
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Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Financial review continued
Net finance costs and taxation
Net finance charges for the period were unchanged at £2.0m (2016: £2.0m).
The effective tax rate for the year was 24.3% (2016: 21.3%), a variance of 4.3% compared to the UK corporation tax rate of 20.0% due
to the effects of non-deductible items, overseas tax rates and other permanent differences. The 3.0% increase from last year’s rate is
predominantly due to lower profitability in the UK with non-deductible items remaining unchanged, along with improved profitability in
Europe being taxed at higher rates.
Separately reported items
The Group makes certain adjustments to statutory profit measures in order to help investors understand the underlying performance
of the business. These adjustments are reported as separately reported items. The Group recorded a net charge of £13.5m
(2016: £5.5m).
Underlying profit before tax
Property related
– Loss on disposal of properties
– Freehold property reversal/(impairment)
– Store asset (impairment)/reversal
– Net onerous lease charge
Strategy
– Store refurbishment – asset write-offs
Other
– Share based payments
Total separately reported items
Statutory profit before tax
2017
£m
14.4
(1.9)
2.2
(0.4)
(11.0)
2016
£m
18.3
(3.6)
(0.4)
0.1
(0.6)
(1.4)
–
(1.0)
(13.5)
0.9
(1.0)
(5.5)
12.8
The charge reported in the 2016 Annual report and accounts was £4.5m. For consistency with the current period presentation we
have reclassified £1.0m relating to share based payments. This has no impact on the Group’s statutory reported profit before tax and
earnings per share. The reclassified separately reported charge for 2016 is therefore £5.5m.
A net loss of £1.9m was made on the disposal of 25 (22 trading and 3 onerous) properties during the year (2016: £3.6m loss),
principally a combination of surrender premiums being paid to exit loss-making stores and asset write-offs.
A number of investment properties that have previously been impaired are in receipt of rental income from independent third party
tenants. As a result, £2.2m of impairment against these locations is no longer required and has been reversed (2016: £0.4m charge).
Leasehold store impairment testing during the year has identified a number of stores where the anticipated future performance does
not support the carrying value of the assets. As a result, a charge of £0.4m has been incurred in respect of the impairment of assets
associated with these stores (2016: £0.1m credit).
At 30 April 2016 there were eleven vacant properties in the UK and two in the Republic of Ireland classed as onerous leases
against which we carried a provision. During the year we disposed of three of these locations. This was offset by three trading
stores being closed and added to this group. Following a strategic review of the store portfolio in February 2017, we have made
a revised assessment of the onerous lease costs for loss-making stores. The net impact of these judgments is a charge of £11.0m
(2016: £0.6m credit).
The value of assets written off during the store refurbishment programme amounts to £1.4m during the year. Given the quantum, and
in keeping with historical treatment, such write-offs have been reported as separately reported items.
In light of the variable and non-cash nature of employee share based payments, these have been classified as separately reported
items. This also allows for greater visibility of these charges in the accounts. A charge of £1.0m was incurred during the year
(2016: £1.0m).
The cash flow impact of separately reported items was £4.0m outflow in the year.
20 | Annual report and accounts 2017
Earnings per share
Underlying earnings per share were 16.4p (2016: 20.8p), reflecting the fall in underlying profitability of the Group.
Basic earnings per share were 1.0p (2016: 14.9p). The reduction in basic earnings per share is less in percentage terms than the
reduction in underlying earnings per share, a result of a deferred tax credit of £0.6m associated with the fall in the UK corporation tax
rate to 17% being taken as a separately reported tax credit.
Dividend
The Board continues to prioritise the use of cash for the acceleration of the strategy by investing further in the existing store estate,
while also reducing the fixed occupancy costs as quickly as possible. As a result, it has taken the decision not to pay a final dividend
(2016: nil). Based on our current outlook, we do not expect this position to change in the current financial year.
Balance sheet
The Group had net assets of £78.0m at the end of the period (2016: £74.0m), a year-on-year increase of £4.0m.
Freehold & long leasehold property
Other non-current assets
Stock
Trade & other current assets
Creditors < 1 year
Creditors > 1 year
Net (debt)/cash
Pension deficit
Net assets
29 April 2017
60.3
116.6
41.1
25.8
(85.6)
(67.2)
(9.8)
(3.2)
78.0
30 April 2016
61.5
107.5
41.6
20.0
(91.1)
(62.2)
(1.1)
(2.2)
74.0
During the period, two freehold property disposals were completed. The Group owns a significant property portfolio, most of which is
used for retail purposes. The carrying values are supported by a combination of value-in-use and independent valuations.
As a consequence of managing the estate to reduce square footage, eliminate store catchment overlap and improve the quality of our
store base on realistic rental deals, the operating lease liabilities have reduced significantly to £531.9m (2016: £599.3m).
www.carpetright.plc.uk |
21
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Financial review continued
Cash flow
The Group’s net debt at 29 April 2017 was £9.8m, an adverse movement of £8.7m (2016: £1.1m debt).
This increase in debt was driven by a combination of the decline in the underlying operating profit performance; net expenditure of
£2.2m on exiting operating leases; cash outflow of £5.2m related to previously made provisions; contributions of £0.9m to closed
defined benefit pension schemes; and an increase of £13.6m in working capital, partially offset by a decrease in stock of £1.0m.
The increase in working capital was attributable to a combination of an increase in debtors (driven by the seasonal impact of a later
Easter and the longer lead times on newly introduced product categories); a decrease in creditors associated with a combination of
lower activity levels and a reduction in performance based costs (the result of lower level of profitability); increase in prepayments due
to timing differences; and amortisation of deferred income relating to property incentives.
The resulting net inflow of cash generated by operations of £7.7m was offset by net capital expenditure, net interest paid, tax paid and
other movements (primarily exchange differences) totalling £16.2m, resulting in free cash outflow of £8.5m (2016: £1.4m outflow).
The Group’s average net debt was £10.2m over the period (2016: £7.1m).
Underlying operating profit
Depreciation & other non-cash items
Decrease/(Increase) in stock
(Increase) in working capital
Net expenditure on exit of operating leases
Contributions to pension schemes
Provisions paid
Operating cash flows
Net interest paid
Corporation tax paid
Net capital expenditure
Free cash flows
Other
Movement in net debt
Opening (net debt)/cash
Closing net debt
2017
£m
16.4
12.2
1.0
(13.6)
(2.2)
(0.9)
(5.2)
7.7
(1.3)
(0.9)
(14.0)
(8.5)
(0.2)
(8.7)
(1.1)
(9.8)
2016
£m
20.3
12.5
(7.0)
(4.3)
(2.2)
(0.9)
(5.1)
13.3
(2.0)
(3.0)
(9.7)
(1.4)
(0.2)
(1.6)
0.5
(1.1)
Gross capital expenditure was £17.4m (2016: £11.9m), with the majority of this relating to the store refurbishment programme and
opening new stores. After allowing for proceeds from freehold property disposals, net capital expenditure was £14.0m (2016: £9.7m).
2017
£m
(12.7)
(1.6)
(1.7)
(1.4)
(17.4)
3.4
(14.0)
2016
£m
(5.9)
(0.6)
(4.0)
(1.4)
(11.9)
2.2
(9.7)
Refurbishment & relocations
New stores
IT
Support offices & warehouse
Gross capital expenditure
Proceeds from freehold property disposals
Net capital expenditure
22 | Annual report and accounts 2017
Current liquidity
In April 2015, the Group completed a refinancing arrangement of its principal facilities, providing £58.0m of debt capacity split
between a revolving credit facility (RCF) and multi-option facilities (principally overdrafts) in a mixture of Sterling and Euro currencies.
In December 2015, the Group elected not to renew its €5.0m multi-option facility in Belgium thereby saving non-utilisation fees. This
action reduced the Group’s total facilities in GBP terms to £54.7m, of which the main £45.0m RCF in the UK matures in July 2019.
The facilities contain financial covenants which are believed to be appropriate in the current economic climate and tested on a quarterly
basis, against which the Group monitors compliance.
Gross bank borrowings at the balance sheet date were £20.1m (FY16: £7.1m), being a combination drawn down from overdraft
and revolving credit facilities. The Group had further undrawn facilities of £34.4m at the balance sheet date. In addition, the Group
held gross cash balances of £12.5m. The combination of these resulted in net debt, before finance leases, of £7.6m, providing total
headroom against facilities of £46.9m. With the addition of £2.2m of finance leases (2016: £2.3m), the Group closed the period on
£9.8m of net debt, being £8.7m higher than year end 2016.
Pensions
At 29 April 2017, the IAS 19 net retirement benefit deficit was £3.2m (2016: £2.2m). The discount rate was 2.5% (2016: 3.5%),
reflecting prevailing corporate bond rates. This lower discount rate resulted in an increase in the schemes’ liabilities and more than
offset the increase in market value of the plan’s assets and additional company contributions.
The scheme was closed to future accrual with effect from 1 May 2010. The Company agreed a recovery plan with the Trustees in
2015 and this will be reviewed following the completion of the triennial valuation, which will be performed as at 5 April 2017.
Neil Page
Chief Financial Officer
www.carpetright.plc.uk |
23
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Managing risk
The Group faces a number of risks and uncertainties in both the development of,
and day-to-day operations of, its business.
General approach to risk
management
Carpetright recognises that effective
business management requires regular
review of business risks. The Group
has established a flexible and practical
framework, sponsored by senior
executives, which aims to identify and
manage the principal risks that may
prevent it from achieving the Group’s
strategic objectives.
The Board and Audit
Committee
The Board has overall responsibility
for the Group’s risk appetite, more
details of which can be found on page
33. It also has overall responsibility for
the system of internal control and for
reviewing its effectiveness. In order to
fulfil this responsibility, the Directors have
established an organisational framework
with clear operational procedures, lines
of responsibility and delegated authority
which has operated throughout the
year under review and up to the date
of approval of the Annual Report and
financial statements.
The system of internal control is designed
to identify, evaluate and manage significant
risks associated with the achievement
of the Group’s objectives. Because of
the limitations inherent in any system of
internal control, this system is designed
to meet the Group’s particular needs and
the risks to which it is exposed rather than
eliminate risk altogether. Consequently,
it can only provide reasonable and not
absolute assurance against material
misstatement or loss.
The Audit Committee assists the
Board through its work covering the
Group’s system of internal controls,
the assessment of risks and related
compliance activities. This includes the
Committee’s oversight of the Group’s
Internal Audit department, which:
– undertakes its work, both on central
functions and in the field, based on a
risk assessment model;
– provides the Audit Committee and the
Board with objective assurance on the
control environment across the Group;
and
– monitors adherence to the Group’s key
policies and principles.
The Audit Committee reports to the
Board on its activities and makes
recommendations and escalates
significant risks or issues to the Board as
appropriate. Its role is described in more
detail on pages 35 to 38.
The Board has reviewed the Group’s
systems of internal control including
financial, operational and compliance
controls as well as risk management,
and is satisfied that these accord with
the guidance on internal controls set out
in the Guidance on Risk Management,
Internal Control and Related Financial and
Business Control, issued by the Financial
Reporting Council in September 2014.
Identification of business risks
An Executive Risk Committee (‘ERC’)
comprising the Executive Directors and
senior managers exists to review key
risk and control issues, and the Group’s
principal risks are individually sponsored
by a member of the ERC. The ERC met
quarterly during the year reported.
The ERC identifies and assesses risks to
the Group’s medium-term strategy and
directs the risk management processes
within both the UK and the Rest of Europe
to address each of the identified risks,
formulate a mitigation strategy and assess
the likely impact of such risk occurring.
The Chief Financial Officer provides regular
reports to the Audit Committee in relation
to its work.
The ERC also considers new and
emerging risks as a standing agenda item,
including those identified by the Board
of Directors. The Committee has also
reviewed the ranking of the business’s key
strategic risks during the year, to ensure
that this remains an appropriate reflection
of their relative standing. The principal
risks and uncertainties affecting the
business are set out on pages 26 to 27.
Oversight and assurance
The Group Finance department is
responsible for the financial policies
and standards adopted within the
Group. It also manages the financial
reporting processes to ensure the timely
and accurate provision of information
which enables the Board to discharge
its responsibilities.
The Company Secretary and Legal
Director is responsible for maintaining
and developing the Group’s framework
of governance, including our anti-bribery
policy and whistleblowing process,
alongside ensuring that any changes to
the Group’s legal obligations are brought
to the attention of the relevant teams who
are responsible for the implementation of
any changes.
The Internal Audit department
provides independent assessment
on the robustness and effectiveness
of the systems and processes of
risk management and control across
the Group. It achieves this through
undertaking reviews which are approved
by and reported to the Audit Committee.
The Group also uses the services of
independent third party advisers and
consultants to review controls and
processes where the nature of the review
requires expertise not available in-house.
24 | Annual report and accounts 2017
Principal risks and
uncertainties
The Group is subject to the same general
risks as many other businesses; for
example, changes in general economic
conditions, currency and interest
rate fluctuations, changes in taxation
legislation, cyber-security breaches, failure
of our IT infrastructure, the cost of our
raw materials, the impact of competition,
political instability and the impact of
natural disasters.
The Group uses its risk management
process as described on page 24 to
identify, monitor, evaluate and escalate
such issues as they emerge, enabling
management to take appropriate action
wherever possible in order to control them
and also enabling the Board to keep risk
management under review.
The risk factors addressed on pages 26 to
27 are those which are believed to be the
most material to its business model, which
could adversely affect the operations,
revenue, profit, cash flow or assets of the
Group and which may prevent us from
achieving the Group’s strategic objectives.
Additional risks and uncertainties currently
unknown, or which are currently believed
immaterial, may also have an adverse
effect on the Group.
Viability statement
In accordance with provision C.2.2 of the
2014 revision of the Code, the Board has
assessed the prospects of the Company
over a longer period than the twelve
months that has in practice been the focus
of the ‘Going Concern’ provision. The
Board conducted the review for a five-
year period, corresponding with the
period covered by its current medium-
term financial plans. These plans are
updated annually and reflect the Group’s
established strategy, its existing investment
commitments, available financial resources
and long-term financing arrangements.
The plans consider profits, cash flows,
funding requirements and other key
financial ratios over the period, as well as
the headroom in the financial covenants
contained in our banking arrangements.
Important assumptions underlying the
plans include:
– funding for capital expenditure in the
form of capital markets debt or bank
debt will be available in all plausible
market conditions; and
– following the UK’s vote to leave the
European Union, the terms of exit are
such that Carpetright will be able to
continue to operate competitively in
the same European markets as it
presently does.
The principal risks are set out on pages
26 to 27 and the most relevant potential
impact of these risks on viability was
considered to be:
– customer proposition and changing
customer preferences whereby a failure
to anticipate and plan for changes in
consumer tastes could have a material
effect on future operations and financial
performance; and
– changing economic conditions which
in the event of a significant reduction
in house prices, housing transactions
or consumer confidence, the Group
would expect to have an adverse
impact on its performance
The Board overlaid the potential impact
of the principal risks which could affect
solvency or liquidity in “severe but
plausible” scenarios onto the five-year
plans and concluded that the business
would remain viable. As part of this, it
performed sensitivity analyses that flexed
inputs to the forecasts including reduced
income, profitability and liquidity, both
individually and in unison, to reflect these
severe but plausible scenarios. Based
on the results of the procedures outlined
above, the Directors have a reasonable
expectation that the Group will be able to
continue in operation and meet its liabilities
as they fall due over the five-year period of
their assessment.
Going concern
The Directors also considered it
appropriate to prepare the financial
statements on the going concern basis,
as explained in the basis of preparation
paragraph in note 1 to the accounts on
page 69.
The Group is principally funded through
shareholders’ funds and bank debt.
The principal banking facility, which
includes a revolving credit facility for
£45 million, is committed to the end of
July 2019. The Directors have considered
the future cash requirements of the Group
and are satisfied that the facilities are
sufficient to meet its liquidity needs.
The facilities are subject to a number
of financial covenants, including a leverage
covenant, a fixed charge cover covenant,
and a capital expenditure covenant.
The fixed charge cover covenant is
the most sensitive to changes in
the Group’s profitability.
The Directors have considered the
expected performance of the business
over at least the next twelve months and
modelled this performance against the
covenants that have been set. In addition,
the Directors have considered the trading
performance necessary to breach the
banking covenants as well as mitigating
factors that would be available and
actionable in the event that the adverse
trading performance became reality.
The Directors have also considered the net
current liability position of the Group and,
given the supplier payment terms and the
expected cash generation, the Directors
confirm that the Group is forecast to be
able to meet its liabilities as they fall due.
The Directors confirm that, after
considering the matters set out above,
they have a reasonable expectation
that the Company and the Group have
adequate resources to continue in
operational existence for a minimum of
twelve months following the signing of
these accounts. For this reason they
continue to adopt the going concern basis
in preparing the financial statements.
Further details of the Group’s liquidity are
given in the financial review on page 23.
www.carpetright.plc.uk |
25
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Principal risks and uncertainties
Description
Possible impacts
Risk management actions
Customer proposition and changing customer preferences
1 2 3 4
Failure to anticipate and plan for
changes in consumer tastes could
have a material effect on future
operations and financial performance
Economic uncertainty
Consumers need to feel confident to
invest money in their homes. In the
event of a significant reduction in
house prices, housing transactions or
consumer confidence, the Group
would expect this to adversely impact
on its performance
Property portfolio
Property costs form a significant part
of our fixed cost base and as such all
decisions in this area have an impact
on the long term value of the
business
Brand, reputation and product
The Carpetright name is a key asset
of the business and, as the largest
operator in its markets, expectations
of the Group are high
– Fail to deliver our
business objectives
– Loss of revenue
– Diminished reputation
– Reduction in market
share
– Reduction in customer
service levels
– Established and communicated a clear strategy
– Prioritise investment in both our existing estate and
online platforms
– Strengthen customer feedback processes to help
improve our offering
– Refreshed our brand, marketing and promotional activity
– Frequently introduce new product ranges
– Provided clarity to our pricing structure
– Fail to deliver our
business objectives
– Loss of revenue
– Reduced long-term
growth and profit
– Provide a broad range of products and price points in
our categories to make it easy for our customers to
trade up or down
– Maintained a robust approach to our cost base to
ensure we remain competitive
– Refreshed our brand, marketing and promotional activity
1 2 3
– Reduced long term
growth, profit and
cash flow
4
– Active management of the property portfolio
– Improved the quality of the estate
– Invested in a detailed location planning model which aids
our understanding of store catchments and customer
demographics
– Consult external advisers, where appropriate, to provide
expert advice and inform decision making
1 2 3
– Fail to deliver our
business objectives
– Diminished reputation
– Loss of revenue
– Loss of consumer trust
– The Group works closely with its suppliers to ensure the
products it sells are of the highest quality and meet the
organisation’s required ethical and safety standards
– Invested in marketing designed to communicate our
credentials on range, choice and value
and confidence
– We ensure our flooring customers receive a first class
– Inability to recruit the
fitting experience
best people
– The performance of our bed delivery partner is
continuously monitored
– We regularly engage with our customers and act upon
their feedback
Competition
The Group competes with a wide
variety of retailers across multiple
channels and across a broad
spectrum of price points
– Fail to deliver our
business objectives
– Loss of revenue
– Reduced long-term
growth and profit
– Invested in marketing designed to communicate our
credentials on range, choice and value
– Continuous monitoring of customer service, product and
advertising performance and competitor activity
1 2 3 4
26 | Annual report and accounts 2017
Description
Possible impacts
Risk management actions
IT performance and cyber-security
1 3 4
Carpetright is dependent on the
reliability, availability, capability and
security of key information systems
and technology
– Diminished reputation
– Loss of revenue
– Loss of consumer trust
and confidence
– Active management of our systems
– Reviewed and tested continuity plans
– Developed separate disaster recovery facilities
– Regular systems’ testing by third parties to provide
– Reduction in customer
assurance as to their security
service levels
People
1 3
The Group relies upon attracting and
retaining talented and appropriately
qualified people in order to deliver its
long-term objectives
– Reduced long-term
growth and profit
– Reduced customer
service levels
– Recruit, train and develop a suitably skilled and qualified
team
– Monitor remuneration packages within our markets
– Identify high fliers for accelerated promotion
– Inadequate succession
planning
– Diminished reputation
– Reduced long-term
growth and profit
1 3
– Operate a number of policies and codes of practice
outlining mandatory requirements
– Management is also responsible for liaising with the
Company Secretary and external advisers to ensure that
potential issues from new legislation are identified and
managed
– We have a whistle-blowing procedure and external
helpline which enables colleagues to raise concerns in
confidence
1
– Fail to deliver our
business objectives
– Reduced long-term
growth and profit
– Active management of our financial position to ensure
that funding requirements are being met
– Bank covenant tests are regularly monitored
– Produced weekly rolling cash flow forecasts
Legal, regulatory and compliance
The Group risks incurring penalties,
damages, claims and reputational
damage arising from failure to comply
with legislative or regulatory
requirements across many areas
including, but not limited to, trading,
health and safety, employment law,
data protection, Bribery Act,
advertising, human rights and the
environment
Cash management
The Group risks exposure to
exchange rate, interest rate, liquidity
and credit risks having an adverse or
unexpected impact on results,
funding requirements or purchasing
ability
Business continuity planning
A major incident, such as a key
system or supplier failure, could
impact the ability of the Group to
continue trading
– Fail to deliver our
business objectives
– Loss of revenue
– Diminished reputation
1 3
– Developed separate disaster recovery facilities
– Reviewed and tested continuity plans
– The Group has long-established and good working
relationships with its key suppliers
– Actively monitor the supply base to identify exposures
and identify appropriate contingency solutions
Link to Strategy
Who we are
1
2
What we sell
3
How we sell
4
Where we sell
www.carpetright.plc.uk |
27
Strategic reportShareholder informationFinancial statementsDirectors’ report Strategic report continued
Corporate responsibility
Corporate responsibility is about doing business the right way.
Our corporate responsibility (CR) policy is
designed to support our objectives and
strategy. Our principal areas of focus are:
– Our customers – how our activities
affect our current and future customers;
– Our people – the Group’s policies and
actions towards our employees;
– Our communities – how we give back to
the communities in which we operate;
and
– Our environment – the impacts we have
on the wider environment and how we
are seeking to reduce this.
Wilf Walsh is the director responsible
for CR.
Our customers
Corporate responsibility starts with our
relationship with customers and we
continued a programme known as ‘Do
We Measure Up?’, whereby customers
are invited to rate and provide feedback
on the three stages of their experience –
in-store ordering, estimating and fitting.
The ratings and feedback are immediately
available to our store and support office
colleagues, where they are used to
monitor and improve our levels of service
to our customers.
We recognise that matters such as how
we treat our people, the environment
and ethical trading are important to our
customers and colleagues, and details can
be found below.
Our people
The Group employs over 3,000 people.
Equal opportunities
The Board believes in creating, throughout
the Group, a culture that is free from
discrimination and harassment, and will
not tolerate discrimination in any form.
We are an equal opportunities employer
and our people and applicants are treated
fairly and equally regardless of their age,
colour, creed, disability, full or part-time
status, gender, marital status, nationality
or ethnic origin, race, or sexual orientation.
28 | Annual report and accounts 2017
Applications from people with disabilities
are always fully considered. Should an
individual become disabled while working
for the Company, efforts are made to
continue their employment and retraining
is provided, if necessary.
We believe the attributes of individuals
and their different perspectives and
experiences add value to our business.
During the year we committed to the ‘Ban
the Box’ initiative, ensuring ex-offenders
are not excluded from appropriate job
opportunities within our business.
We recognise that a diverse workforce
will provide us with an insight into different
markets and help us anticipate and
provide what our customers want from us.
A breakdown by gender of the number of
persons who were Directors of the Group,
senior managers and other employees as
at 29 April 2017 is set out below.
Directors
Senior managers
Other employees
Total
Male
5
8
2,462
2,475
Female
1
2
728
731
Training and development
Our training and development
programmes are focused on giving our
people the skills they need to carry out
their jobs and in due course to move
up to new roles, enabling them to
develop their careers. This has included
training in relation to health and safety,
interest free credit, product knowledge,
customer service, management skills and
personal development.
In October 2016 we introduced a new
social learning platform, “Fuse”, which
enables all colleagues to take control of
their own development with access to
bite-sized learning anywhere, any time
and on any device, including the use of an
app. Since the launch, over 6,000 training
plans have been completed with another
1,000 + learning plans in progress.
Engagement
There are a number of communication
channels in place to help people develop
their knowledge of, and enhance their
involvement with, the Group. These
channels include surveys, management
briefings, briefings to stores and offices,
and other less formal communications.
In 2016 we started using Fuse as an
additional communication tool, enabling
us to reach all UK and RoI colleagues
instantly for the first time. So far 80%
of colleagues have engaged with the
platform, and, on average Fuse receives
72,000 page views per day.
Additionally, all annual results and interim
management statements are made
available through both the intranet and
Fuse. Directors and senior management
regularly visit stores and discuss matters
of current interest and concern with
their colleagues.
Share ownership
All colleagues have an opportunity to
invest in the Company’s shares through
a Savings Related Share Option Scheme.
Over 30% of colleagues participate in
this scheme.
Bribery and whistleblowing
As a responsible employer we maintain a
firm stance against any type of corruption
within the business.
There is a Group-wide Anti-bribery and
Corruption Policy in place which requires
compulsory Anti-Bribery compliance and
a copy of the Policy is circulated to all
new starters when they join the business.
The Group operates whistleblowing
hotlines through third-party providers
enabling matters of concern to be
raised with the Company on a named or
anonymous basis. Further details can be
found in the Audit Committee report on
page 37.
Health and safety
We operate an established process for risk
assessment and employees are expected
and encouraged to be proactive on health
and safety issues.
Health and Safety Committees meet
to review any issues to identify, prevent
and militate against potential risks. We
investigate all accidents and recommend
changes to working practices, additional
colleague training and disciplinary action
as and when appropriate. There have not
been any fatalities this year (2016: nil).
We have received notification of 144
accidents across the Group during the
year, compared to 179 in the prior year.
Of these, 133 were in the UK, with the
remaining 11 being in Europe and the
Republic of Ireland.
Human rights and modern slavery
We do not have a specific human rights
policy at present, but we do have policies
that adhere to international human rights
principles. We will review from time-to-
time whether a specific human rights
policy is needed in the future, over and
above our existing policies.
Our statement on modern slavery is on our
website www.carpetright.plc.uk.
Our communities
We are committed to giving something
back to the communities in which we
operate. From March 2017, following
a colleague vote, we have been
supporting the British Heart Foundation.
The partnership, which is largely
centred on colleague fundraising, raised
£10,000 during the first weekend, which
saw Carpetright staff selling BHF pin
badges, running raffles, bake sales and
sponsored cycles.
Our environment
In line with our strategy of building a
sustainable business, we are committed
to taking steps to control and minimise
any damage our operations may cause to
the environment through manufacturing
processes, transport, energy usage and
packaging. In particular, we are aware of
the issue of climate change and we are
taking steps to understand and minimise
our carbon emissions.
Products and suppliers
We have an Ethical and Environmental
Code of Conduct (the Code) to ensure
that we have an ethical supply chain and
require our suppliers to sign up to the
Code. The Code prohibits, for example,
animal testing, the use of timber from
non-sustainable sources and the use of
certain chemicals which may be harmful to
customers. This code has been updated
in order to make it clearer that modern
slavery is unacceptable.
Energy usage and greenhouse
gas emissions
We recognise that the Company benefits
through reduced cost and the environment
benefits by reducing our consumption
of energy and water. The release of
greenhouse gases (ghg), notably CO2
generated by burning fossil fuels, has
an impact on climate change, which
presents a risk to both our business and
the wider environment. We accept our
responsibility to continually improve our
environmental performance.
We continue to benefit from the
introduction of Automatic Meter Readers
for electricity and gas, which enable
us to identify high-use locations and
take corrective action where necessary,
together with proactive management
preventing us heating stores overnight.
During the year ended 2017, we were
able to reduce our electricity consumption
by a combination of reducing store
numbers, introducing LED lighting into our
refurbished stores and installing motion-
sensor technology to ensure lights are
only being used when necessary. So far
we have introduced these energy-saving
practices into 39 stores in the UK.
Emissions data in respect of the financial
year ended 2017 is as follows:
Emission type
Scope 1: Operation of facilities
Scope 1: Company owned vehicles
Scope 1: Emissions
Scope 2: Purchased energy
Scope 2: Emissions
Total emissions
Greenhouse gas emissions intensity ratio:
Total footprint (Scope 1 and Scope 2)
Turnover (£m)
Intensity ratio (tCO2/turnover £000)
Notes:
CO2e
(Carbon
Dioxide
equivalent)
2017
8,783
6,141
14,924
16,827
16,827
31,751
2017
31,751.3
457.6
0.070
CO2e
(Carbon
Dioxide
equivalent)
2016
8,793
5,623
14,417
19,743
19,743
34,165
2016
34,162
456.8
0.075
Change
–
9%
4%
(15%)
(15%)
(7%)
Change
(7%)
–
(7%)
1. Our methodology has been based on the principles of the Greenhouse Gas Protocol.
2. Consumption is based on utility bills.
3. We have reported on all the measured emission sources required under the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations. This includes Scopes 1 and 2 but excludes any
emissions from Scope 3. The period used is 1 May 2016 to 30 April 2017.
4. Conversion factors for electricity, gas and other emissions are those published by the Department for
Environment, Food and Rural Affairs in 2014 – GHG Conversion Factors for Company Reporting.
5. Refrigerant fugitive emissions have been excluded as the impact was immaterial.
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Strategic reportShareholder informationFinancial statementsDirectors’ report Directors’ report
Board of Directors
Bob Ivell
Non-Executive Chairman
Bob joined the Board as Chairman on 1 November 2014. He is currently Non-Executive
Chairman of Mitchells & Butlers plc and Non-Executive Director at Charles Wells Ltd.
He was previously Chairman of David Lloyd Leisure Limited, Park Resorts Group Limited,
Next Generation Clubs Pacific, the Senior Independent Director of Britvic plc and AGA
Rangemaster Group plc and a Non-Executive Director of The Restaurant Group plc.
He has over 30 years’ experience in the food and beverage industry, holding executive
roles with Regent Inns plc, Scottish & Newcastle plc and Whitbread plc, each of
which involved the management of large consumer-facing estates. He chairs the
Nomination Committee.
Wilf Walsh
Chief Executive Officer
Appointed to the Board as Chief Executive on 21 July 2014, Wilf has held senior
positions in various roles, most recently as Chairman of Fortuna Entertainment Group NV,
and was also the Managing Director of Coral and a Non-Executive Director of Gala Coral
Group between 2000 and 2016. Prior to that he spent six years with HMV Media Group
as the Managing Director of HMV Germany and as Operations Director for the UK and
Ireland. Wilf graduated in Law from the University of Leeds and is a Chartered Fellow of
the Institute of Personnel and Development.
Neil Page
Chief Financial Officer
Neil joined Carpetright in July 2008 as Group Finance Director. Neil began his career
with British Rail and Marks and Spencer. He joined Superdrug in 1991, holding a variety
of finance and operational positions before taking up the role of Finance and IT Director
for AS Watson (Health & Beauty) UK Ltd in July 2002. In his role as Chief Financial
Officer he also has responsibility for property and supply chain activities. He is a fellow
of the Chartered Institute of Management Accountants.
30 | Annual report and accounts 2017
Sandra Turner
Non-Executive Director
Sandra joined the Board in October 2010. She spent 21 years at Tesco and was
part of its senior management team, holding senior commercial and operational roles
in the UK and Ireland. From 2003 to 2009 she was the Commercial Director of Tesco
Ireland. She is the Senior Independent Director of Greggs plc and a Non-Executive
Director of McBride plc, and Huhtamäki Oyj and was previously a Non-Executive Director
of Northern Foods plc and Countrywide plc. She chairs the Remuneration Committee.
David Clifford
Non-Executive Director
David, a Chartered Accountant, joined the Board in December 2011. He was previously
a Senior Partner with KPMG. Throughout his career he held a variety of roles and
led the Consumer Markets Unit of KPMG for a period, advising a number of retailers.
He is a Trustee and the Treasurer of the Gurkha Welfare Trust, a Trustee of the Varkey
Foundation, an educational charity, and a Non-Executive Director of Optivo, a housing
association. He chairs the Audit Committee.
Andrew Page
Non-Executive Director
Andrew joined the Board in July 2013 and was appointed as the Senior Independent
Director in April 2015. He is the Chairman of Northgate plc and a Non-Executive
Director of JP Morgan Emerging Markets Investment Trust plc and Schroder UK Mid
Cap Fund plc. Andrew retired as Chief Executive of The Restaurant Group plc (“TRG”)
in August 2014 after thirteen years with TRG. Prior to joining TRG, he held a number
of senior positions in the leisure and hospitality industry including Senior Vice President
with InterContinental Hotels. Andrew trained and qualified as a Chartered Accountant
with KPMG. He is the Senior Independent Director.
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Directors’ reportStrategic reportShareholder informationFinancial statements Directors’ report continued
Corporate governance
Introduction
One of the Board’s key responsibilities is
to ensure that the Company is run in the
long-term interests of its shareholders and
broader stakeholder base. The Group
recognises the importance of high
standards of corporate governance and is
committed to operating within an effective
corporate governance framework.
Application of the UK Corporate
Governance Code
The version of the Corporate Governance
Code applicable to the current reporting
period is the September 2014 UK Corporate
Governance Code (the Code). The Code is
issued by the Financial Reporting Council
and is available for review on its website.
During the financial year ended 29 April
2017, the Company complied with the
provisions set out in the UK Corporate
Governance Code.
Governance structure
The structure of the Board and its
Committees is set out below.
The Board
There have not been any changes to the
composition of the Board this year.
Details of the number of meetings and
Board attendance are set out below:
Number of meetings:
Executive
Directors
Wilf Walsh
Neil Page
Non-Executive
Directors
Bob Ivell
(Chairman)
Andrew Page
David Clifford
Sandra Turner
Attendance
9
9
Attendance
9
8
9
9
9
Meetings
eligible to
attend
9
9
Meetings
eligible to
attend
9
9
9
9
The Board views that it is appropriately
balanced and currently consists of the
Chairman, two Executive and three Non-
Executive Directors, brief biographies of
whom can be found on pages 30 and 31.
There is a formal, rigorous and transparent
procedure for the appointment of new
Directors to the Board and this is described
in the section concerning the Nomination
Committee on page 34.
The Board believes that its current
size and structure are appropriate for
managing the Group in an effective and
successful manner.
Whilst not required by the Code, as the
Company is outside the FTSE 350, all
Directors will offer themselves for re-election
at the Annual General Meeting.
Highlights
During the year the Board:
− assessed and decided upon the
corporate strategy
− reviewed and approved all trading
announcements and the interim and
final results
− reviewed the competitive market in which
the Company operates, the effect of a
new competitor entering the market
and the Company’s response
− agreed the property strategy
− reviewed the financial effect of the store
refurbishment programme
− approved the investment in replacement IT
− reviewed its risk appetite and the
current assessment of the principal risks
compared to the desired level of risk
− met with senior managers and
received presentations in relation to
Fuse (see the CR report on page 28), the
beds business, property strategy and IT
− reviewed the terms of reference of
its Committees
− approved option grants
− received an update on the Market
Abuse Regulations
− approved the Statement of
Modern Slavery
Bob Ivell
Non-Executive Chairman
“The Group is committed to
operating within an effective
corporate governance framework.”
32 | Annual report and accounts 2017
32 | Annual Report and Accounts 2017
The Non-Executive Directors of the
Company play a key governance role and
bring an extra dimension to the Board’s
deliberations. The Board considered the
independence of each Non-Executive
Director against the criteria specified in
the Code and has determined that
each remains fully independent.
The Non-Executive Directors meet, with
no Executive Directors present, at least
once each year. Andrew Page, the Senior
Independent Director, led the review of the
Chairman’s performance by meeting with
each Director and the Company Secretary
separately and met with the Chairman to
provide feedback.
The Board is responsible for setting the
Group’s objectives and policies, providing
effective leadership and for approving the
Group strategy, budgets, business plans
and major capital expenditure. It has
responsibility for the management,
direction and performance of the Group
and is accountable to the Company’s
shareholders for the proper conduct of its
business. The Board has a formal schedule
which sets out those matters requiring
Board approval and specifically reserved
to it for decision.
The Board is responsible for determining its
risk appetite and did so in the year. It has
regularly reviewed the current assessment
of the principal risks compared to the
desired level of risk. Further details of the
principal risks affecting the Group can be
found on pages 26 and 27.
Directors receive weekly sales updates,
monthly trading results, commentary,
briefing notes and reports for their
consideration in advance of each Board
meeting, including reports on the Group’s
operations, to ensure that they remain
briefed on the latest developments and
are able to make fully informed decisions.
All Directors have access to the advice and
services of the Company Secretary and the
Board has established a procedure whereby
Directors may take independent professional
advice at the Company’s expense. In
addition, such advice may include training
in order to enable them to discharge their
roles and responsibilities as a Director.
All new Directors receive an induction
tailored to their particular requirements.
An annual process of evaluation of the
Board and its Audit, Nomination and
Remuneration Committees has been
undertaken. This was led by Bob Ivell with
the assistance of the Company Secretary.
The Board and each of its Committees
considered its mix of skills, its leadership
and governance role, whether the meetings
are of the right length, whether the strategic
and operational focus is appropriate,
the effectiveness of the Chair and the
Secretariat and whether all directors
have the opportunity to air their views.
The results have been considered by
the Board and confirmed the strength of
leadership within the business and a sound
governance framework, identifying only
minor changes necessary to improve
the Board’s effectiveness. The one
area highlighted for additional focus is
succession planning, which is being
considered by the Nomination Committee.
Board Committees
The Board has three Committees,
each of which has written terms
of reference which are available on
the Company’s corporate website
(www.carpetright.plc.uk).
The Board periodically reviews the
membership of its Committees to ensure
that it is refreshed annually. All Non-
Executive Directors (other than the
Chairman) are members of each
of the Committees. The Company
provides the Committees with sufficient
resources to undertake their duties.
The Company Secretary, or his nominee,
acts as Secretary to each Committee.
Board of Directors
Audit Committee
The role of the Audit Committee, its members and details of how it carried out its duties are set out
in the Audit Committee report on pages 35 to 38.
Remuneration Committee
The role of the Remuneration Committee, its members and details of how it carried out its duties
are set out in the Directors’ remuneration report on pages 39 to 60.
Nomination Committee
The role of the Nomination Committee, its members and details of how it carried out its duties are
set out on page 34.
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Directors’ report continued
Corporate governance continued
Continuing professional
development
All Board members are updated on matters
relevant to the Group, including legal and
regulatory developments, and members of
Board Committees are updated on matters
relevant to their Committee membership.
In the year, the Remuneration Committee
received updates on current best practice
from New Bridge Street.
The performance of individual Directors
is considered as part of the annual
Board appraisal process. The individual
development needs of Executive Directors
are overseen by the Nomination Committee.
Non-Executive Directors have access
to professional development provided
by external bodies. Their continuing
competence is considered by the
Nomination Committee as part of the
annual process of recommending the
reappointment of Directors at the AGM.
Share capital
Details of the Company’s share capital and
significant shareholders can be found on
pages 61 and 62.
Nomination Committee
The Nomination Committee is chaired by
Bob Ivell. Details of its membership and
attendance are set out below:
Number of
meetings:
Members
Bob Ivell
(Committee
Chairman)
Andrew Page
Sandra Turner
David Clifford
1
Meetings
eligible to
attend
Attendance
1
1
–
1
1
1
1
1
The responsibilities of the
Nomination Committee
include:
− identifying and nominating
candidates for appointment
to the Board for the approval
of the Board;
− reviewing development needs
of the Executives; and
− making recommendations
to the Board on Board
composition and balance.
The Committee considers the diversity
of the Board (including gender) and the
skills and competencies of the existing
Directors when drawing up specifications
for new appointments. It ensures that
the development needs of Executive
Directors and other senior managers
are addressed appropriately.
An external search consultancy is ordinarily
used in relation to the appointment of both
Executive and Non-Executive Directors.
The Committee also considers whether
Directors due to retire at an Annual General
Meeting should be recommended for re-
appointment, and whether the appointment
of Non-Executive Directors reaching the
end of their three-year term should be
renewed. Committee members do not
vote on their own re-appointment.
Following the review of the Board and
its effectiveness the Committee will be
providing additional focus in relation to
succession planning in the coming year.
34 | Annual report and accounts 2017
34 | Annual Report and Accounts 2017
Audit Committee report
David Clifford
Chairman of the Audit Committee
“Overall, I am satisfied that the
activities of the Committee during
the year enable it to gain a good
understanding of the key risks
impacting the Group along with
the oversight of its key controls.”
Dear Shareholder,
I am pleased to introduce the report of the
Audit Committee for 2017.
The Committee plays an important part
in the governance of the Group, with its
principal activities focused on the integrity of
financial reporting, quality and effectiveness
of internal and external audit, risk
management and the system of
internal control.
During the year the Audit Committee
has undertaken the following tasks:
– considered our financial results
announcements and financial statements
and monitored compliance with relevant
statutory and listing requirements;
– reported to the Board on the
appropriateness of our accounting
policies and practices;
– overseen the relationship with the
external auditors including reviewing
their independence, objectivity
and effectiveness;
– reviewed the external auditors’ plan
for the audit of the Group’s accounts,
approved the terms of engagement for
the audit and reviewed their findings;
– reviewed the process for ensuring that
senior management confirm that they
have supplied the auditors with
relevant audit information;
– approved the audit fees paid to the
external auditors and reviewed the
application of the policy on non-audit
work performed by them together with
the non-audit fees payable to them;
– reviewed the scope, resources, results
and effectiveness of the activity of the
Group internal audit department;
– reviewed the work of the Executive
Risk Committee, which oversees the
identification and management of the
risks to the business, together with
reports on the Group’s systems of
internal control;
– performed in-depth reviews of specific
areas of financial reporting, risk and
internal controls and discussed these
with the executives responsible for the
relevant area;
– considered all matters reported via the
whistleblowing line and reports relating
to fraud;
– reviewed the viability statement; and
– reviewed its terms of reference
and effectiveness.
We meet formally at key times within our
reporting calendar and the agendas are
designed to cover significant areas of risk
over the course of the year and to provide
oversight and challenge to the key financial
judgments, controls and processes that
operate within the Company.
The Committee will continue to keep
its activities under review in the light
of regulatory developments and the
emergence of best practice.
Overall, I am satisfied that the activities of
the Committee during the year enable it
to gain a good understanding of the key
risks impacting the Group along with
the oversight of its key controls.
I will be available to answer any questions at
the AGM in September.
David Clifford
Chairman of the Audit Committee
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Directors’ reportStrategic reportShareholder informationFinancial statements
Directors’ report continued
Audit Committee report continued
The internal audit reports this year
received and reviewed by the Committee
showed an increasing stock-loss in stores.
As a result there is a renewed focus on
reducing this loss through improved
operational discipline. There will be a
measure relative to operational discipline as
part of the annual bonus in respect of the
financial year ending 2018, details of which
are contained in the remuneration report
on page 58.
Financial reporting
The Committee reviewed, with
management and the external auditors, the
half-year and annual financial statements,
concentrating on, amongst other matters:
– the appropriateness and application
of accounting policies and compliance
with the relevant financial reporting
requirements;
– material areas in which significant
judgments have been applied or there
has been discussion with the external
auditors; and
– whether the Annual Report and Accounts
contains the necessary disclosures
to fairly reflect the Group’s financial
condition and results of its operations.
To aid its review, the Committee considered
reports from the Chief Financial Officer and
also reports from the external auditors on
the outcomes of their half-year review and
annual audit.
The primary areas of judgment considered
by the Committee in relation to the 2017
accounts, and how these were addressed,
are set out below. In all cases the
Committee discussed with PwC
its work in respect of these areas.
The Audit Committee is chaired by David
Clifford. The Board has determined that
David Clifford has recent and relevant
financial experience. There have not been
any changes to the composition of the
Committee in the period. The biographies
of the members of the Committee can be
found on page 31. Details of membership
and attendance are set out below:
Number of meetings:
5
Meetings
eligible to
attend
Attendance
Members
David Clifford
(Committee
Chairman)
Andrew Page
Sandra Turner
5
5
4
5
5
5
Main activities of the
Committee during the year
The Committee assisted the Board in
carrying out its responsibilities in relation
to financial reporting requirements, risk
management and the assessment of
internal controls and has an agenda
linked to events in the Group’s financial
calendar. It also reviewed the effectiveness
of the Group’s internal audit function and
managed the Group’s relationship with
the external auditors. The Committee
Chairman reported to the Board, as part of
a separate agenda item, on the activity of
the Committee and matters of particular
relevance to the Board in the conduct
of its work.
The Committee reviewed the viability
statement, which is designed to be a
longer-term view of the sustainability of
the Company’s strategy and business
model and related resourcing, in the light
of projected wider economic and market
developments. The Committee reviewed
the processes designed to enable the
Board to make this statement. The
statement appears on page 25 together
with details of the processes, assumptions,
and testing which underpin it.
Composition
The Committee meets at least four times
during the year. Meetings are attended
by the members who are independent
Non-Executive Directors and, by invitation,
the Chairman, the Chief Executive, the Chief
Financial Officer, and the Director of Group
Internal Audit. The external auditors,
PricewaterhouseCoopers LLP (PwC),
were invited to three meetings this year.
This year, Deloitte LLP, who provide services
to the internal audit team, also attended one
meeting with the Audit Committee.
Other relevant people from the business
are also invited to attend certain meetings
in order to provide a deeper level of insight
into certain key issues and developments.
There are also private meetings with the
external and internal auditors without
management present.
The Audit Committee is appointed by the
Board from the Non-Executive Directors of
the Company. The terms of reference are
reviewed annually by the Audit Committee
and are then referred to the Board for
approval. These are available on the
Company’s corporate website at
www.carpetright.plc.uk.
36 | Annual report and accounts 2017
36 | Annual Report and Accounts 2017
Risk management and
internal control
Internal audit
The Committee considered and approved
the Annual Internal Audit plan and at each
meeting reviewed reports from the Director
of Group Internal Audit, including those
showing performance against the plan,
and approved changes as appropriate.
The reports include updates on audit
activities, progress of the Group audit plan,
the results of any unsatisfactory audits and
the action plans to address these areas,
and resource requirements of the Internal
Audit department. The internal audit team
utilises the services of Deloitte LLP to assist
in the discharge of its functions. Private
discussions are held with the Director
of Group Internal Audit as necessary
throughout the year. Deloitte also met
with the Committee during the year.
Internal control
The Committee reviewed the process
by which the Group evaluated its control
environment. Its work here is driven
primarily by the work undertaken by the
Group’s Internal Audit department, which
includes any reported fraud. The Director
of Group Internal Audit monitored the timely
implementation of any recommendations
and reported to the Committee accordingly.
The Committee also reviewed the
documentation prepared to support
the Board’s annual statement on internal
controls before its consideration by the
full Board.
Goodwill impairment testing
The judgments in relation to goodwill
impairment largely relate to the assumptions
underlying the calculation of the value-in-
use of the business being tested for
impairment, primarily the achievement
of the long-term business plan and
macroeconomic assumptions underlying
the valuation process. The Committee
addressed these matters through receiving
reports from management and discussing
the assumptions used. The Committee
agreed that no impairment was necessary.
Impairment of the valuation of freehold
and long-leasehold property
The Committee has carried out a further
review of the property valuations. Following
discussions with both management
and PwC, the Committee agreed with
management that a release of £2.2m of
the impairment of the property charge
previously carried is appropriate.
Onerous lease provision
The practice is to treat a lease as being
onerous if the store relative to the lease
is closed or if the expected benefits of
using the leased property are less than the
unavoidable property costs. Management
makes an assessment as to the cost
of exiting the lease based on available
information and knowledge of the property
market. The Committee has discussed
with management the judgments and
assumptions made in determining the
provision and agreed with management
that as a result of the disposal of leases of
three properties previously considered to be
onerous, the leases of three further trading
stores being identified as onerous and the
reassessment of the provision, there would
be a net charge of £11.0m to the provision.
Further details can be found in note 5 to
the financial statements on page 78.
Whistleblowing
The Company operates a whistleblowing
telephone line in the UK and an email
whistleblowing facility in Europe. Both
are operated by independent companies
and reports are received by the Director
of Group Internal Audit, the Company
Secretary or the HR Director. Matters
reported related to individual treatment by
line managers or colleagues, dishonesty,
right to work in the UK and breach of
Company policy. In each case the issues
were investigated, a judgment was made
and action taken where appropriate.
The outcome of all matters was
reported to the Audit Committee.
Risk management
The Group’s risk assessment process and
the way in which significant business risks
are managed is a key area of focus for the
Committee. The Committee received and
considered reports from the Chief Financial
Officer on the Group’s risk evaluation
process and reviewed changes to significant
risks identified. It also discussed emerging
and potential risks.
The Committee reviewed, in detail, the
assessment and controls for the principal
risks and uncertainties as set out on pages
26 and 27. The work included a review of
the controls in place to mitigate the risk,
the assessment by the Director of Group
Internal Audit and a discussion with the
risk owner, being a senior executive.
The Committee considered in-depth
reviews into fitters, people, information
technology and cyber risks, risks in Europe,
changing customer preferences and the
property portfolio.
The Committee considers these reviews
to be an important part of its role, as they
allow it to meet executive management
responsible for these areas and undertake
independent challenge of their activities.
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Directors’ reportStrategic reportShareholder informationFinancial statements
Directors’ report continued
Audit Committee report continued
External audit
Assessing the effectiveness of the external
audit process is dependent on appropriate
audit risk identification at the start of the
audit cycle. The Committee received a
detailed audit plan from PwC, identifying
their assessment of these key risks. For
the 2017 financial year the primary risks
identified and how the scope of the audit
addressed the area of focus are set out in
the auditors’ report on pages 103 to 108.
The Committee discusses the work done
by the auditors to test management’s
assumptions and estimates around
these areas. The Committee assesses
the effectiveness of the audit process
in addressing these matters through the
reporting it receives from, and discussions
with, PwC at both the half-year and year-
end. In addition, the Committee also
seeks feedback from management on
the effectiveness of the audit process.
For the 2017 financial year, management
was satisfied that there had been
appropriate focus and challenge on the
primary areas of audit risk and assessed
the quality of the audit process to be good.
The Audit Committee concurred with the
view of management.
The Committee holds private meetings with
the external auditors twice a year to provide
additional opportunity for open dialogue
and feedback from the auditors without
management being present. Matters
discussed include the transparency and
openness of interactions with management
and confirmation that there has been no
restriction in scope placed on them by
management. The Audit Committee
chairman also meets with the audit
partner from time to time outside
the formal committee process.
Appointment and independence
The Committee and Board place great
emphasis on the independence and
objectivity of the Group’s auditors, PwC,
when performing their role in the Group’s
reporting to shareholders and considering
their re-appointment each year.
The Committee reviews the independence,
objectivity and performance of the auditors
annually, including the annual report on
the auditors produced by the Audit Quality
Review Team of the Financial Reporting
Council and the auditors’ own annual report
on its independence.
PwC have been auditors to the Company
since 2005 when they were appointed
following a competitive tender. They were,
again, re-appointed following a competitive
tender which concluded in May 2016 and
was reported in the 2016 Annual Report.
The auditors’ tenure runs from one AGM
to the next and there are no contractual
obligations that restrict the Committee’s
choice of external auditors.
The external auditors are required to
rotate the audit partner responsible for the
Group audit every five years. The audit of
this Report and Accounts is the third to be
carried out of the Group by the current
audit partner.
Non-audit services
To further safeguard the objectivity and
independence of the external auditors
from becoming compromised, the
Committee has a formal policy governing
the engagement of the external auditors to
provide non-audit services. No changes
have been made to this policy during the
year. This precludes the auditors from
providing certain services such as valuation
work or the provision of accounting services
and also sets a presumption that the
auditors should only be engaged for non-
audit services where the appointment
of an alternative supplier would be either
impractical or inefficient, bearing in mind
the particular circumstances.
The auditors may only provide such
services provided that such advice does not
conflict with their statutory responsibilities
and ethical guidance. There are financial
limits in respect of which the engagement of
PwC for non-audit services is pre-approved,
being no more than 10% of the audit fee.
For those permitted services that exceed
the specified fee limits, the Audit Committee
Chairman’s or the Committee’s approval,
depending upon the financial expenditure, is
required before PwC can provide non-audit
services. The Audit Committee Chairman’s
approval is required for any engagement of
PwC where the fee would exceed 10% of
the audit fee, but is less than 25% of the
audit fee, with the Committee’s approval
being required for expenditure in excess
of 25% of the audit fee.
The Committee monitors the volume of
work provided by the auditors and the fees
incurred in order to consider whether to use
other firms. The Company continues to use
other firms for general tax advice and to
support the internal audit function.
During the year the only non-audit services
work undertaken by PwC related to online
technical resources at a total cost of £1k
(2016: £53k).
Audit and non-audit fees
Details of the auditors’ remuneration for
audit work and non-audit fees for the period
ended 29 April 2017 are disclosed in note 3
to the financial statements on page 77 and
disclosed above. The Committee approved
the fees for audit services for 2017 after a
review of the level and nature of work to be
performed and after being satisfied that the
fees were appropriate for the scope of the
work required.
Committee evaluation
The Committee’s activities formed part of
the review of Board effectiveness performed
in the year. Details of this process can
be found on page 33. No significant
matters were identified which needed
to be addressed.
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Directors’ remuneration report
Sandra Turner
Chair of the Remuneration Committee
“The New Policy is designed to
ensure that executive remuneration
will continue to be directly related to
the achievement of the Company’s
strategic aims.”
Dear Shareholder,
I am pleased to present the Directors’
remuneration report on behalf of the Board.
The report comprises three key sections:
– This annual letter;
– Our remuneration policy report, which
sets out a summary of the Directors’
remuneration policy for all directors of
Carpetright. This is a new policy for the
three years from the Annual General
Meeting to be held in September 2017
and will be put to a binding shareholder
vote at that meeting; and
– Our annual remuneration report, which
sets out how our current remuneration
policy has been implemented.
The annual remuneration report is subject
to an advisory shareholder vote at the
2017 AGM.
Remuneration policy
Our current remuneration policy was
approved by shareholders at our AGM on
4 September 2014 and became effective
for three years (the ‘Current Policy’). I am
pleased to summarise the Current Policy
and the way it has been implemented
during the financial year ended 2017.
Looking ahead, I also explain in this report
the Committee’s thinking with regard to
the design and structure of the Revised
Remuneration Policy (the ‘New Policy’)
which is being placed before shareholders
for approval on a binding basis at the
Annual General Meeting to be held in
September 2017. If approved, the New
Policy is expected to operate from the
conclusion of the 2017 AGM until our
AGM in 2020.
The Committee continues to remain mindful
of the interest in executive remuneration.
The Committee has therefore carefully
reviewed and taken into consideration the
developments in corporate governance
and best practice during the year. In line
with this the Committee has again sought
to ensure that the remuneration policies
and practices, and the New Policy being
proposed at this year’s AGM, are clearly
explained and justified such that they will
drive behaviour that is both appropriate
and in the long-term interests of the
Company and shareholders.
Remuneration policy review
The Committee has engaged and consulted
with its key shareholders and shareholder
representative bodies with regard to director
remuneration focusing, in particular, on
obtaining feedback on the proposals for
the New Policy. The Committee has
considered and taken into account all
of the feedback which it has received
and is grateful for the engagement that
has taken place.
Shareholders approved the Current Policy
at the 2014 AGM, with a vote in favour of
87%. Subsequent years’ remuneration
reports detailing the application year on
year of the Current Policy were approved by
shareholders with votes in favour of 85%.
The majority of the vote against the reports
related to the absence of a two-year post-
vesting period in relation to the Company’s
Long-Term Incentive Plan (LTIP). The
Committee, accordingly, took that into
account in producing the revised policy and
the New Policy includes such a provision.
The Committee remains firmly committed
to ensuring that the remuneration of the
Executive Directors supports and drives the
Carpetright strategy based on a framework
which both challenges and motivates
management to deliver the strategy
and value for our shareholders.
A summary of the changes proposed
between the Current Policy and the New
Policy is set out in the policy table on pages
42 to 45 and, as can be seen, only limited
changes are being proposed.
Long term incentive plan
As explained above, one change that we
are proposing is the introduction of a two-
year post-vesting period in relation to the
Company’s LTIP. A resolution to amend
the LTIP rules will be presented to the AGM
as a consequential amendment is required
to enable dividend equivalents to be paid in
respect of the two-year post-vesting period.
This will apply to all awards which have
been made subject to a post-vesting
holding period, including those to be
made in July 2017.
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The Committee also recognises that it
is increasingly common for companies
to include more than one performance
measure in respect of the LTIP. Historically
the Company has only included one
measure in respect of LTIP awards and
has debated, at length, an appropriate
second measure. Amendments have
been proposed in the New Policy to make
this desire more explicit. However, the
Committee decided that, for grants made
this year, only one measure will be used.
Share retention guidelines
The current shareholding guideline is
for Executive Directors to hold the same
percentage of base salary as awards are
made under the LTIP.
Changes have been made to the
shareholding guidelines such that
there is an additional holding period
in respect of shares vesting under the
Long-Term Incentive Plan of one year
post-employment.
Conclusion
The Committee is confident that the
New Policy will ensure that the level of
remuneration in place and its linkage to
the achievement of increasing shareholder
value continues to remain appropriate. In
particular, the New Policy is designed to:
ensure that executive remuneration will
continue to be directly related to the
achievement of the Company’s strategic
aims; link a significant proportion of pay to
performance, with appropriate and robust
performance criteria and targets; directly
relate increases in pay and pension to the
workforce in general; have no retrospective
adjustment or re-testing of performance
or related metrics; be compatible with the
Company’s risk policies and systems
and remain sufficiently flexible to address
changing circumstances as they arise but
within carefully agreed parameters. The
Committee therefore commends the New
Policy to shareholders at the 2017 AGM
as set out in the Notice of Meeting.
Voting on both the New Policy and the
annual report on remuneration will take
place at the forthcoming AGM to be held
on 7 September 2017.
Salaries
For the 2017 pay review, the Chief
Executive and the Chief Financial Officer
indicated to the Committee that, in light of
the performance of the business, their base
salaries should remain unchanged. The
Committee therefore decided not to
conduct a review of their pay and,
as a result, their base salaries
remain unchanged.
Annual bonus scheme
As described in the financial review
section of the Annual report the Group has
delivered an underlying profit before tax of
£14.4m. The strategic objectives relating
to property and customer service for the
Executive Directors were both achieved in
part. However, this level of profit is below
the level at which an annual bonus would
be earned. Consequently, no bonus will be
paid in respect of the financial year ended
April 2017. Further details can be found
in the annual report on remuneration
on page 53.
Annual incentive arrangements for the
financial year ending 2018 for Executive
Directors will be again based upon the
achievement of underlying profit targets and
strategic objectives. Subject to commercial
confidentiality, performance against these
targets will be disclosed in next year’s report.
Long term incentives
The level of vesting under the LTIP
awards made in July 2014 reflects
the challenging targets that were set for
participants. The performance measure
set related to cumulative underlying profit
over a three-year measurement period.
I am pleased to report that, for the first
time since 2009, the performance over
the three-year period has been such that
75% of the LTIP awards made will vest
on 31 July 2017.
The Committee has reviewed the current
performance of the LTIP awards made in
2015 and 2016, which were also based
upon cumulative underlying earnings per
share measures, and has concluded that
they are currently unlikely to vest. Further
details can be found on page 55.
It is anticipated that awards under the
LTIP will normally be made following the
announcement of the annual results.
The awards to be made in 2017 will
have a performance measure based on
underlying earnings per share and will
be subject to a two-year post-vesting
holding period. The Committee will
continue to keep the introduction of a
second performance measure relative for
LTIP awards under review for future awards.
The level of awards will be consistent with
the level made in previous years.
Gender pay gap reporting
In addition to the consideration of executive
remuneration, the Committee has taken a
keen interest in the gender pay gap and the
Company will be publishing its data when
required by law.
Closing comments
I will be available to answer any questions
at the AGM in September and recommend
that you support the adoption of the New
Policy, the Directors’ remuneration report
and annual report on remuneration at our
forthcoming meeting.
Sandra Turner
Chair of the Remuneration Committee
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Part 2 – Directors’ Remuneration Policy Report
Introduction
This report has been prepared to comply with the provisions of the Companies Act 2006 and other applicable legislation, including the
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) (‘Regulations’), and has also
been prepared in line with the recommendations of the UK Corporate Governance Code (the ‘Code’) and the Listing Rules of the
UK Listing Authority.
As part of its responsibilities the Remuneration Committee prepares the Policy Report, below, describing the framework within which the
Company remunerates its Executive Directors and other senior executives (subject to shareholder approval). If approved by shareholders
at the 2017 AGM, it will replace the Current Policy (approved by shareholders at the 2014 AGM) and will apply for a period of three years
from the date of the 2017 AGM or until a revised Policy is approved by shareholders, if sooner. Any existing remuneration commitments
or contractual arrangements agreed prior to the approval and implementation of this Policy in accordance with any policy in place at the
time, namely before 7 September 2017, will be honoured in accordance with their original terms.
Adoption of New Policy
The Company’s existing remuneration policy was subject to a binding shareholder vote at the 2014 Annual General Meeting of
the Company.
The Company is proposing to shareholders the New Policy at the forthcoming 2017 AGM, in order to meet the requirement for such
policies to be submitted to shareholders at least once every three years. The New Policy is again designed to ensure that the remuneration
framework will support and drive the strategy forward by both challenging and motivating the Executive Directors and senior management
to deliver it and drive value for our shareholders. Details of the New Policy are set out on pages 42 to 49.
The Remuneration Policy Report as approved by shareholders at the Company’s 2014 AGM is set out in the Company’s 2014, 2015 and
2016 Annual Reports which can be found on the Company’s website at www.carpetright.plc.uk.
Policy overview
A key part of the Committee’s role is to ensure that the remuneration of Executive Directors and senior management is aligned to the
Company’s strategic objectives. It is key that the Company is able to attract and retain leaders who are focused and also appropriately
incentivised to deliver the Company’s strategic objectives within a framework which is aligned with the interests of the Company’s
shareholders. This alignment is (or will be, if the New Policy is adopted by shareholders) achieved through a combination of setting
appropriate performance targets, a retention period for vested LTIP awards and share ownership guidelines which require executives to
build up holdings of Carpetright shares. These guidelines, which are reviewed at least annually, require Executive Directors to build up and
maintain a target holding having a value equal to the same multiple of base salary as awards are made under the LTIP (150% for Wilf Walsh,
125% for Neil Page). Until such a holding is achieved, each Executive Director is obliged to retain shares with a minimum value equal to
50% of the post-tax vested shares under the LTIP.
The Committee ensures that a significant proportion of the overall remuneration package of Executive Directors remains at risk. With
all packages for Executive Directors substantially geared towards meeting targets set under the annual bonus and long-term incentive
schemes, the Committee believes that the pay and benefits of its Executive Directors and senior management adequately take account
of reward versus risk.
The Committee considers that no element of the remuneration arrangements, which are all very carefully considered, will encourage
inappropriate risk taking or behaviour by any executive.
The policy for the remuneration of the Executive and Non-Executive Directors is set out in the tables below.
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Policy Table – Elements of Directors’ remuneration package
Executive Directors
Purpose and link to strategy Operation
Maximum
Performance measurement
Base salary
Helps to recruit and
retain Executive
Directors.
Reflects
responsibilities,
performance,
experience and role.
Generally reviewed annually (with any
change effective in May) but exceptionally at
other times of the year.
Annual increases generally in line
with the level of standard increase
awarded to other employees.
Not applicable
Set with reference to individual performance,
experience and responsibilities, reflecting the
market rate for the individual and their role.
More significant increases may be
awarded at the discretion of the
Committee in connection with:
When reviewing the salaries of the Executive
Directors, the Committee also has regard to
the impact on the cost of pension provision
and pay and conditions elsewhere in the
Group. In particular, the Committee takes
account of the level of salary increases
awarded to other employees of the
Group when deciding on increases for
Executive Directors.
– an increase in the scope and
responsibility of the individual’s
role; or
– the individual’s development and
performance in the role following
appointment.
No substantive change to policy from 2014 vote.
Benefits
Provides a competitive
package of benefits to
assist with recruitment
and retention of
Executive Directors.
Executive Directors are entitled to a
competitive package of benefits, including:
– car benefits;
– life assurance; and
– private medical cover.
No substantive change to policy from 2014 vote.
Not applicable
The value of a car allowance is of a
level appropriate to the individual’s
role and
is subject to review from time to
time.
The cost to the Company of other
benefits is not predetermined and
may vary from year to year.
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Purpose and link to strategy Operation
Maximum
Performance measurement
Pension
The Company
aims to provide
competitive
retirement benefits.
This helps recruit
and retain Executive
Directors.
The Company operates a defined contribution
Group Personal Pension Plan (‘GPPP’). Executive
Directors are offered a specific percentage of their
base salary to fund their own pension provision.
The Executive Directors are able to choose whether
the allowance is paid to the GPPP or to receive
the allowance by way of a salary supplement.
No substantive change to policy from 2014 vote.
Up to 20% of base salary.
Not applicable
Annual bonus
To incentivise
achievement of
annual targets and
objectives consistent
with the short to
medium-term
strategic needs
of the business,
so as to encourage
sustainable growth
in the Company’s
operating profits.
Bonuses are awarded by reference to performance
against specific targets measured over a single
financial year.
Any amounts awarded to an Executive Director
under this arrangement are paid out in full shortly
after the assessment of the performance targets
has been completed.
Bonuses do not form part of the Executive
Directors’ pensionable earnings.
Bonuses are subject to clawback at the discretion
of the Committee in the event of a material
misstatement of the financial results, an error
in assessing the size of the bonus or where
the individual had committed an act of gross
misconduct during the relevant financial year.
Capped at 100% of
base salary.
The percentage payable
for on-target performance
is determined by the
Committee each year in
light of the degree of
stretch in the targets and
affordability of the resulting
bonus pay-outs relative to
budgeted levels of profit.
No substantive change to policy from 2014 vote.
The measures and targets
are set annually by the
Committee in order to
ensure that they are
relevant to participants
and take account of the
most up-to-date business
plan and strategy.
All or a significant majority
of the bonus opportunity
will normally be
determined by reference
to performance against
a demanding Group
underlying profit target.
Additional targets
applied may relate to
the achievement of
specific strategic or
personal objectives.
These measures will be
disclosed in the annual
report on remuneration,
where not deemed
commercially sensitive.
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Purpose and link to strategy Operation
Maximum
Performance measurement
Long Term Incentive Plan (‘LTIP’)
Incentivises
Executive Directors
to deliver superior
levels of long-term
performance for
the benefit of
shareholders,
thereby aligning
their interests
with those of
the Company’s
investors.
The current LTIP was approved at the 2013 AGM
(Carpetright Long Term Incentive Plan 2013).
Awards consist of annual awards of shares that vest
three years after grant to the extent that performance
conditions have been met over a three-year
performance period.
A two-year post-vesting holding period applies to
shares (less any required to be sold to cover tax
and social security) that vest.
Awards are subject to clawback at the discretion of
the Committee in the event of a material misstatement
of the financial results, an error in the calculation of
performance conditions or if the participant ceases
to be employed as a result of misconduct.
– normal maximum of
150% of salary; and
– exceptional
circumstances
maximum 250%
of salary.
Dividend equivalents
may be payable on
LTIP awards, in cash
or shares, to the extent
that awards vest.
The measures and targets
are set annually by the
Committee ensuring
alignment with the
Company’s medium
to long-term strategy.
Awards to be made in the
financial year ending 2018
are expected to be subject
to performance conditions
based on the Company’s
underlying earnings per
share.
25% will vest at threshold
with full vesting taking
place for equalling or
exceeding the maximum
target, with a sliding scale
between the two points.
The Committee has
discretion to set different
and multiple metrics and
targets for future awards.
Proposed substantive change for 2017 policy vote.
The revised policy provides clarity that 25% of an award will vest at threshold. The former policy was silent on the matter.
A two-year post-vesting holding period has been introduced.
All employee share schemes, including a Sharesave Plan and Share Incentive Plan (‘SIP’)
Encourages a broad
range of employees
to become long-term
shareholders.
The Company operates HM Revenue and
Customs approved Sharesave and SIP plans
with standard terms.
Sharesave and SIP
participation limits are
as set by the UK tax
authorities from time
to time.
Not applicable
No substantive change to policy from 2014 vote.
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Purpose and link to strategy Operation
Maximum
Performance measurement
Share retention guidelines
To further align the
interests of Executive
Directors to those of
shareholders.
Executive Directors are expected to build up and retain
a shareholding of the same percentage of salary as
awards are made under the LTIP by the retention of
shares with a minimum value equal to 50% of the net
of tax gain arising from any vesting or exercise under
the Company’s Long-Term Incentive Plan.
The Executive Directors are required to continue to hold
the lower of 50% of their guideline level and 50% of the
value of shares they own at cessation of employment
(excluding shares purchased in the market) for a period
of one year following cessation of employment.
Not applicable.
Not applicable.
Proposed substantive change for 2017 policy vote.
This matter did not previously appear in the policy table, although the guidelines existed and was reported upon in previous Annual
Reports. In 2014 the guideline was to build up and retain a shareholding having a value equal to 100% of base salary using the
mechanism set out above. This was increased in 2015 to shareholdings having a value equal to the same percentage of salary
as awards are made under the LTIP (150% for the Chief Executive and 125% for the Chief Financial Officer).
The guideline now applies, to a reduced extent, for a period of one year following cessation of employment.
Non-Executive Directors
Helps recruit and
retain high quality,
experienced
individuals.
Reflects time
commitment
and role.
The Chairman is paid a fee, and no additional fee will be paid
for chairing any of the Board’s Committees.
Non-Executive Directors are paid an annual basic fee plus
additional fees are payable to the Senior Independent Director
(SID) and the Chair of each of its Committees. Where the SID
role is combined with that of chairing a Committee then only
one fee is paid.
Not applicable.
The aggregate
amount of Directors’
fees is limited by the
Company’s Articles
of Association.
Non-Executive Directors are not eligible for pension scheme
membership, bonus or incentive arrangements. They are
entitled to reimbursement of reasonable business expenses
and tax thereon.
Limited benefits relating to travel, accommodation and
hospitality may be provided in relation to the performance
of any Directors’ duties.
Non-Executive Directors’ fees are set by the Executive
Directors with reference to external data on fee levels in
similar businesses, having taken account of the
responsibilities of individual Directors and their
expected annual time commitment.
Proposed substantive change for 2017 policy vote.
The references to deputy chairman have been removed as the Company no longer has a deputy chairman (who was also the SID) and
clarity has been provided that an additional fee can be paid to the SID.
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Differences in remuneration policy across the Group
The remuneration policy for the Executive Directors and other senior executives is designed with regard to the policy for employees across
the Group as a whole. However, the differences set out above arise from the development of remuneration arrangements that are market
competitive for the various categories of individuals. They also reflect the fact that, in the case of the Executive Directors and senior
executives, a greater emphasis is typically placed on performance-related pay and in share-based form, which provides a good link
to long-term Company performance.
The following differences exist between the above policy for the remuneration of Directors and its approach to the payment of
employees generally:
– a lower level of maximum annual bonus opportunity applies to employees other than the Executive Directors and certain
senior managers;
– store-based colleagues receive commission based upon sales achieved, and field-based colleagues receive bonuses based upon the
performance of their sphere of responsibility;
– participation in the LTIP is limited to the Executive Directors and certain selected senior managers. Other employees are eligible to
participate in the Company’s all employee share schemes;
– under the Company’s defined contribution pension scheme, the Company contribution for less senior employees is lower than that
provided to Executive Directors; and
– benefits offered to other employees generally comprise colleague discount and, depending upon the colleague’s seniority, healthcare.
Incentive plan determinations and discretions
The Committee fully recognises that the exercise of discretion must be undertaken in a very careful and considered way and that it is
an area that will quite rightly come under scrutiny from shareholders and other stakeholders. It is, however, important for the Committee
to retain some discretion to make payments outside its remuneration policy in exceptional circumstances. The Committee confirms that
any exercise of discretion in such circumstances would be within the available discretions set out in this report, the rules of the relevant
schemes, the Listing Rules and HMRC rules where relevant and that the maximum levels available under any relevant plans would not
be exceeded.
The Committee may grant awards under the LTIP as conditional share awards or nil (or nominal) cost options. The Committee may also
decide to grant cash-based awards of an equivalent value to share-based awards or to satisfy share-based awards in cash, although it
does not currently intend to do so, other than in respect of the tax element of any vesting of awards made under the LTIP. The Committee
may decide that participants will receive a dividend equivalent payment (in cash and/or shares).
The choice of the performance metrics applicable to the annual bonus reflect the Committee’s aim that annual incentives should promote
growth in underlying earnings, while also promoting the achievement of key non-financial objectives. The LTIP performance measure
captures long-term growth in earnings performance, which we believe is most closely aligned with the financial performance expected
by our shareholders. In line with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure, the Committee will
ensure that the incentive structure for Executive Directors and senior management will not raise environmental, social or governance risks
by inadvertently motivating irresponsible behaviour. More generally, the Committee will ensure that the overall remuneration policy does not
encourage inappropriate operational risk-taking.
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With regard to the annual bonus scheme and the LTIP, the Committee, consistent with market practice, is required to make certain
determinations under and retains discretion over a number of areas relating to the operation and administration of these plans. These
include (but are not limited to) the following (with the maximum level of awards restricted as set out in the policy table on pages 42 to 45):
– who participates in the plans;
– the timing of grant of award and/or payment;
– the size of an award and/or a payment (within the limits set out in the policy table above);
– the choice of (and adjustment of) performance measures and targets for each incentive plan in accordance with the policy set out above
and the rules of each plan;
– discretion relating to the measurement of performance in the event of a change of control or reconstruction;
– determination of good leaver status for incentive plan purposes based on the rules of each plan and the appropriate treatment chosen;
– making adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, on a change of control and special
dividends), provided that the revised conditions or targets are not materially less difficult to satisfy; and
– discretion to allow participants to sell, transfer, assign or dispose of some or all of their shares in exceptional circumstances before the
end of the holding period, subject to such additional terms and conditions as the Committee may specify.
Any exercise of discretions would, where relevant, be explained in the annual report on remuneration and may, as appropriate, be the
subject of consultation with the Company’s major shareholders.
Legacy arrangements
In approving the Policy Report, authority is given to the Company to honour any commitments entered into with current or former Directors
that is consistent with the approved remuneration policy in force at the time the commitment was made (or, if made before the Current
Policy was approved, as have been disclosed previously to shareholders), or was made at a time when the relevant individual was not
a Director of the Company.
Consideration of employee views
Although the Committee does not formally consult employees on executive remuneration, the Committee considers the general basic
salary increase as well as pay and conditions for the broader employee population when determining the annual salary increases for
the Executive Directors.
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Service agreements and policy on termination
It is the Company’s policy to employ UK Executive Directors under contracts with an indefinite term subject to termination by notice given
by either party, normally of 12 months or less. Non-UK Executive Directors would be employed under contracts with similar terms to those
of UK Executive Directors, subject to market practice and laws of any other jurisdiction where an employee is based.
The Company seeks to avoid any payment for failure. The circumstances of the termination (taking into account the individual’s
performance) and an individual’s duty and opportunity to mitigate losses are taken into account in every case.
If the Company terminates employment without giving full notice to the Executive Director, under the Service Contracts the Company has
the option to either:
– pay damages calculated by reference to common law principles, including an obligation on the Executive Director to mitigate loss; or
– make a payment in lieu of notice calculated by reference to basic salary and benefits only. Such payments may be phased and would be
reduced or terminated if alternative employment was secured during the notice period. There is also a requirement to mitigate loss.
The Company also retains flexibility to pay reasonable legal fees and other costs incurred by the individual that are associated with the
termination (including the settlement of claims brought against the Company) and to provide outplacement services.
In circumstances in which a departing director may be entitled to pursue a legal claim, the Company may negotiate settlement terms and,
with the approval of the Committee on the remuneration elements therein, enter into a settlement agreement accordingly.
In addition, the Company would honour any legal entitlements, such as statutory redundancy payments or awards made by any tribunal or
court, which executives may have on, or in respect of, termination.
No bonuses are payable to individuals who are no longer employed or are under notice at the end of the financial year.
Long-term incentive awards lapse on cessation of employment other than in certain ‘good leaver’ circumstances (including death,
retirement with the agreement of the Committee, ill health, or because the individual’s employing company or part of the business in which
employment is transferred out of the Group or as otherwise determined by the Committee). Where an individual is a ‘good leaver’, awards
would not lapse but would normally continue to vest at the end of the original performance period but only if, and to the extent that, the
applicable performance conditions are satisfied. Awards would also normally be subject to a pro-rata reduction to take account of the
proportion of the vesting period that has elapsed, although the Committee has discretion to disapply pro-rating in certain circumstances.
On a change of control awards would vest early, subject to performance conditions being achieved, and would normally be subject to a
pro-rata reduction, although the Committee has discretion to disapply pro-rating.
Neil Page and Wilf Walsh have contracts of an indefinite term, subject to a 12 month notice period. Non-Executive Directors are entitled to
one month’s notice.
Recruitment remuneration
Salaries for new hires (including internal promotions) will be set to reflect their skills and experience, the Company’s intended pay positioning
and the market rate for the role. If it is considered appropriate to appoint a new Director on a below market salary (for example, to allow
them to gain experience in the role), their salary may be increased to a market level over a number of years by way of a series of increases
above the general rate of wage growth in the Group and inflation.
The remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s approved
remuneration policy in force at the time of appointment. The Committee has discretion to set different targets and/or vary the weightings
of the targets used in the annual bonus and LTIP for the first year following appointment. In addition, the Committee may offer additional
cash and/or share-based elements if it considers these to be in the best interests of the Company (and therefore shareholders). Any such
additional cash and/or share-based payments would be: (i) based solely on remuneration lost when leaving the former employer and would
reflect (as far as practicable) the delivery mechanism, time horizons and performance requirement attaching to that remuneration; and
(ii) delivered under the Group’s existing incentive arrangements to the extent possible, although awards may also be granted outside
these schemes, if necessary, and as permitted under the Listing Rules.
In the case of an internal appointment, any outstanding variable pay awarded in relation to the previous role will be allowed to pay out
according to its terms of grant (adjusted as relevant to take into account the Board appointment).
The Committee may also agree that the Company will compensate executives, both internal and external, for certain relocation expenses
as appropriate. Tax equalisation may also be considered if an executive is adversely affected by taxation due to their employment with the
Company. Legal fees and other costs incurred by the individual may also be paid by the Company.
Fees for new Non-Executive Directors would be set in line with the policy set out above.
48 | Annual report and accounts 2017
48 | Annual Report and Accounts 2017
Outside appointments of the Executive Directors
Executive Directors retain remuneration from outside non-executive directorships. Wilf Walsh was a non-executive director of Gala Coral
until 1 November 2016 and retained his fees from this directorship which accrued at a rate of £80,000 p.a.
Policy for Non-Executive Directors
The Non-Executive Directors do not have service contracts. They are appointed for an initial three-year period, subject to being re-elected
by members annually.
Consideration of shareholder views
The Remuneration Committee considers shareholder feedback received on the Directors’ remuneration report each year and guidance
from shareholder representative bodies more generally. Shareholders’ views are key inputs when shaping remuneration policy. The
Company consulted with major shareholders and other shareholder representative bodies in relation to changes to its remuneration policy.
Details of votes cast for and against the resolution to approve last year’s remuneration policy and annual report on remuneration, and any
matters discussed with shareholders during the year, are set out in the annual report on remuneration.
Expected value of the proposed annual remuneration packages for Executive Directors
The following chart indicates the level of remuneration payable to Executive Directors in respect of the financial year ended 2018 based
on policy at ‘minimum’ remuneration, remuneration in line with ‘on-target’ performance and the maximum remuneration available for
stretch performance.
1,800
1,500
1,200
900
600
300
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
£1,726
40%
27%
£980
18%
23%
£578
100%
59%
33%
£1,065
35%
28%
37%
£631
15%
24%
61%
£388
100%
Fixed only
Target
Wilf Walsh
Stretch
Fixed only
Target
Neil Page
Stretch
Fixed
Bonus
LTIP
Assumptions:
– Fixed only – fixed pay only, including base salary, pension allowance and benefits as disclosed in the single figure table on page 52.
– On-target – fixed pay, plus 50% of salary annual bonus, plus 37.5% of salary LTIP vesting (Wilf Walsh) / 31.25% of salary LTIP vesting
(Neil Page).
– Maximum – fixed pay, plus 100% of salary annual bonus, plus 150% of salary LTIP vesting (Wilf Walsh) / 125% of salary LTIP vesting
(Neil Page).
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Directors’ remuneration report continued
Part 3 – Annual report on remuneration
Introduction
This annual report on remuneration provides details of the way in which the Committee implemented its policy during the financial year to
29 April 2017. It also summarises how the policy contained within the Directors’ Remuneration Policy Report on pages 41 to 49 will be
applied in the financial year ending 28 April 2018.
It has been prepared in accordance with the Regulations 2008. In accordance with the Regulations, this part of the report will be subject to
an advisory vote at the forthcoming AGM on 7 September 2017.
The Company’s auditors are required to report to Carpetright’s shareholders on the “auditable parts” of this annual report on remuneration
(which have been highlighted as such below) and to state whether, in their opinion, those parts have been properly prepared in accordance
with the Regulations and the Companies Act 2006.
Structure and Responsibilities of the Remuneration Committee
The Remuneration Committee is chaired by Sandra Turner. Details of its membership, the date they joined the Committee and attendance
are set out below:
Number of meetings:
Members
Sandra Turner (Committee Chairman)
Andrew Page
David Clifford
Date joined Committee
Attendance
October 2010
July 2013
September 2014
5
4
5
5
Meetings eligible
to attend
5
5
5
The Non-Executive Directors who served on the Committee had no personal financial interest (other than as shareholders) in the matters
decided, no potential conflicts of interest from cross-directorships and no day-to-day involvement in running the business. Biographical
information on the current Committee members is shown on page 31. The Company Secretary (Jeremy Sampson) acts as secretary to
the Committee.
At the invitation of the Committee, the Chairman (Bob Ivell), the Chief Executive (Wilf Walsh), the Chief Financial Officer (Neil Page), and the
Director of Human Resources (Lyn Rutherford) regularly attend Committee meetings. The Committee considers their views when reviewing
the remuneration of the Executive Directors and senior executives. They are not involved in decisions concerning their own remuneration.
The responsibilities of the Committee include:
– determining and agreeing with the Board the broad remuneration policy for the Chairman, Executive Directors and senior executives;
– setting individual remuneration arrangements for the Chairman and Executive Directors;
– recommending and monitoring the level and structure of remuneration for those members of senior management within the scope of
the Committee; and
– approving the service agreements of each Executive Director, including termination arrangements.
The Committee’s terms of reference are available on the Company’s corporate website (www.carpetright.plc.uk).
50 | Annual report and accounts 2017
50 | Annual Report and Accounts 2017
Summary of Committee activity during the year ended 2017
During the year ended 2017 the Committee has:
– conducted an extensive review of the current remuneration policy;
– considered both internal and external reference points in the completion of this review;
– undertaken a formal investor consultation;
– discussed and reviewed the salaries of Directors and other senior executives;
– discussed and reviewed the level of awards under the LTIP;
– considered the appropriate metrics and targets for both the annual bonus and LTIP awards for the year ahead;
– considered performance against the targets for the 2016 annual bonus (and following the year end, the 2017 annual bonus);
– considered, since the year end, the performance against targets for the 2014 LTIP and approved payments under that award;
– considered and approved the content of the Directors’ remuneration report;
– reviewed and proposed new share retention guidelines for Directors;
– approved the launch of an annual invitation under the SAYE scheme; and
– reviewed its own performance.
Remuneration advice
The Committee is authorised by the Board to appoint external advisers if it considers this beneficial. Over the course of the year, the
Committee was advised by New Bridge Street (a trading name of Aon Hewitt Limited, part of Aon plc). New Bridge Street was appointed
as advisers in 2010 following a competitive tender. The Committee’s advisers attended all five Committee meetings. New Bridge Street,
which is a signatory to the Remuneration Consultants’ Group Code of Conduct for Executive Remuneration Consultants, did not provide
other services to the Company. Fees paid (excluding VAT) by the Company to New Bridge Street during the year amounted to £39k net
of VAT (2016: £25k). Although other members of the Aon plc group of companies provided insurance broking and advisory services to the
Company, the Committee is satisfied that the provision of such services did not create any conflict of interest. The Committee reviews the
effectiveness and independence of its advisers at a Committee meeting on an annual basis.
Statement of shareholder voting at the 2016 AGM
The table below shows the voting outcome at the 9 September 2016 AGM in respect of the approval of the
2016 Directors’ remuneration report.
To approve the remuneration report
% votes cast
Note:
1. A vote withheld is not a vote in law.
For (including
discretionary
votes)
39,507,685
85%
Against
6,882,919
15%
Total votes cast
(for and against
excluding votes
withheld)
Votes withheld1
Total votes cast
(including
withheld votes)
46,390,604
397,223
46,787,827
One shareholder’s proxy vote represented the majority of the vote against the remuneration policy. It is understood that this principally
related to the absence of a two-year post-vesting holding period for LTIPs. This has been addressed in the New Policy.
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Directors’ remuneration report continued
How our remuneration policy was implemented in the financial year ended 2017
Single total figure table for the financial year ended 2017 (audited)
The remuneration of the Directors for the year was as follows:
Executive Directors
Wilf Walsh
Neil Page
Total
Non-Executive Directors
Bob Ivell
Sandra Turner
David Clifford
Andrew Page
Total
Salary
and fees
£000
Benefits1
£000
Pension2
£000
Subtotal fixed
remuneration
£000
Bonus3
£000
Long-term
incentives4
£000
All
employee
schemes5
£000
Subtotal
variable
remuneration
£000
Single figure
for total
remuneration
£000
459
300
759
150
44
44
44
282
28
28
56
92
60
152
–
–
–
–
–
–
–
–
–
–
579
388
967
150
44
44
44
282
–
–
–
–
–
–
–
–
217
112
329
–
–
–
–
–
4
4
8
–
–
–
–
–
221
116
337
800
504
1,304
–
–
–
–
–
150
44
44
44
282
The remuneration of the Directors for the financial year ended 2016 was as follows:
Executive Directors
Wilf Walsh
Neil Page
Total
Non-Executive Directors
Bob Ivell
Sandra Turner
David Clifford
Andrew Page
Total
Salary
and fees
£000
Benefits1
£000
Pension2
£000
Subtotal fixed
remuneration
£000
Bonus3
£000
Long-term
incentives4
£000
All-
employee
schemes5
£000
Subtotal
variable
remuneration
£000
Single figure
for total
remuneration
£000
459
300
759
150
44
44
44
282
28
28
56
–
–
–
–
–
92
60
152
–
–
–
–
–
579
388
967
150
44
44
44
282
240
157
397
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
240
157
397
819
545
1,364
–
–
–
–
–
150
44
44
44
282
Notes:
1. The main benefits available to the Executive Directors during the year ended 2017 were a car allowance, life assurance and private medical cover.
2. The pension provision is by way of a salary supplement to the Executive’s base salary.
3. This column shows the amount of bonus paid or payable in respect of the year in question.
4. This column shows the value of shares that vested in respect of LTIP awards with performance conditions that ended during the relevant period and includes dividends
accrued during the relevant performance period and are payable on vesting. The share price used for the purpose of calculation of the figure for the financial year
ended 2017 is the average mid-market closing share price (rounded to the nearest penny) in the dealing days in the three months to 29 April 2017, being 225p.
This will be restated in next year’s report to reflect the actual share price on the date of vesting. Details of the vesting of the January 2014 awards (included in
the 2016 single figure) are provided on page 54. Further details of the LTIP’s operation during the year ended 2017 are provided on page 55.
5. These figures represent the value of the 20% discount on the Sharesave option price granted in the relevant year.
52 | Annual report and accounts 2017
52 | Annual Report and Accounts 2017
Payments to past directors (audited)
No payments were made to past directors in the financial year ended 2017.
Pensions (audited)
Executive Directors are offered an allowance of 20% of their base salary to fund their own pension provision. The individual is able to
choose whether this allowance is paid to the Company’s defined contribution Group Personal Pension Plan (‘GPPP’) or paid by way of
a salary supplement.
Wilf Walsh and Neil Page both received their allowance as a salary supplement.
Annual incentives – 2017 structure and outcome (audited)
In respect of the financial year ended 2017, Executive Directors were eligible to receive an annual performance bonus based on the
achievement of performance targets relating to Group underlying profit (80% of the total opportunity) and strategic metrics linked to
property and customer service in store (20% of the total opportunity). Payment in respect of the achievement of strategic objectives
was subject to an underpin based upon the Group’s financial performance.
The strategic objectives were as follows:
– A property-related objective. As disclosed in the Strategic Report on page 12, we are managing the portfolio to reduce square footage,
eliminate store catchment overlap and relocating to better locations on realistic rent deals. During the year we opened 14 new stores
and closed 22, giving a net reduction of 8 stores. We continue to eliminate stores from towns where we have more than one unit.
Due to the ongoing activity in relation to the property portfolio the precise targets are commercially sensitive. The precise targets will
be disclosed once they are no longer commercially sensitive. As a result, the property targets in respect of the financial year ended
2016 as well as in respect of the financial year ended 2017 are yet to be disclosed.
– Improvement in customer service relating to the Net Promoter Score. This was a move away from the previous measure and towards
a more recognisable metric. The proportion of highly satisfied customers and overall satisfaction is also measured.
The maximum bonus opportunity for Executive Directors for the 2017 financial year was 100% (2016: 100%) of basic salary earned in the
financial year. In 2017, 50% (2016: 50%) of the financial element was payable for on-target performance.
The Committee considered the extent to which the Executive Directors had achieved the financial and strategic objectives. The strategic
objectives relating to the property objective and the Net Promoter Score were met to the extent as set out in the table below. However,
as the financial metric was not achieved, no bonus will be payable.
Threshold
Target Maximum Actual performance
Maximum
percentage
of bonus
Actual
percentage
of bonus
Metric
Financial
Underlying profit before tax (£m)
Property
20%
payout
18.4
Commercially sensitive
50%
payout
23.0
100%
payout
27.6
Net Promoter Score (averaged over three months)
Bonus payout
71%
73%
75%
14.4
Threshold
exceeded
75%
80%
10%
10%
100%
0%
0%
0%
0%
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Directors’ remuneration report continued
Long-term incentives (audited)
LTIP awards granted in January 2014 and included in single figure for the year ended 2016
The LTIP awards granted in January 2014, which lapsed in January 2017, were based on performance to the year ended 30 April 2016.
There was a single underlying cumulative profit performance condition relating to these awards, with pro-rata straight-line vesting between
the points:
Underlying cumulative profit before tax over the performance period
Below £44m
£44m
£60m
Vesting level
0%
25%
100%
Actual cumulative profit measured over the three financial years ended 30 April 2016 was £36.1m. As a result, none of the awards vested.
LTIP awards granted in July 2014 and included in the single figure for the year ended 2017
The LTIP awards granted in July 2014, which will vest in July 2017, are based on performance over the three financial years beginning
27 April 2014. There was a single underlying cumulative profit performance condition relating to these awards with pro-rata straight-line
vesting between the points:
Underlying cumulative profit before tax over the performance period
Below £35.2m
£35.2m
£51.2m
The actual performance included in the single figure table is set out below:
Vesting level
0%
25%
100%
LTIP award
July 2014
Performance target
Underlying cumulative profit
Weighting
100%
Actual
performance
Actual vesting
level
Date at end of
performance period Date of vesting
Share price
at vesting1
£45.9m
75%
29 April 2017 31 July 2017
225p
Note:
1. The share price used for the purpose of calculation of the figure for the financial year ended 2017 is the average mid-market closing share price (rounded to the nearest
penny) in the dealing days in the three months to 29 April 2017, being 225p.
54 | Annual report and accounts 2017
54 | Annual Report and Accounts 2017
LTIP granted July 2015
The LTIP awards granted in July 2015, which will vest in July 2018, based on performance over the three financial years beginning
3 May 2015, are shown in the table below:
Wilf Walsh
Neil Page
Type of award Basis of grant
Nil cost
option
Nil cost
option
150% of
salary
125% of
salary
Average share
price in 5
working days
preceding
date of grant
Number of
shares over
which award
was granted
Face value of
award
577p
119,324
£688,499
Threshold
vesting
25%
Maximum
vesting
100%
577p
64,991
£374,998
25%
100%
Performance
measure
Cumulative
underlying
earnings per
share to the
financial year
ended 2018
Awards will vest according to performance against the cumulative underlying earnings per share, as set out below:
Cumulative underlying earnings per share over the performance period
Less than 65.6p
65.6p
80.2p
Based on current performance these awards are unlikely to vest.
% of award
that vests
(on a straight line
basis between
points)
Equivalent to
compound profit
growth from
2015
0%
25%
100%
<18.1%
18.1%
28.6%
Vesting level
Nil
Threshold
Maximum
LTIP granted September 2016
The LTIP awards granted in September 2016, which will vest in September 2019, based on performance over the three financial years
beginning 3 May 2016, are shown in the table below:
Wilf Walsh
Neil Page
Type of award Basis of grant
Nil cost
option
Nil cost
option
150% of
salary
125% of
salary
Average share
price in 5
working days
preceding
date of grant
Number of
shares over
which award
was granted
Face value of
award
241p
285,684
£688,498
Threshold
vesting
25%
Maximum
vesting
100%
241p
155,601
£374,998
25%
100%
Performance
measure
Cumulative
underlying
earnings per
share to the
financial year
ended 2019
Awards will vest according to performance against the cumulative underlying earnings per share, as set out below:
Cumulative underlying earnings per share over the performance period
Less than 68.6p
68.6p
83.8p
Based on current performance these awards are unlikely to vest.
% of award
that vests
(on a straight line
basis between
points)
Equivalent to
compound profit
growth from
financial year
ending 2016
0%
25%
100%
<5.9%
5.9%
13.2%
Vesting level
Nil
Threshold
Maximum
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All-employee share plans (audited)
Sharesave
Details of options awarded to the Executive Directors under the Sharesave plan during the course of the year are set out in the table below.
Both Executive Directors cancelled their participation in previous schemes in order to participate in the 2017 scheme.
Wilf Walsh
Neil Page
Share Incentive Plan
Granted during the year
Exercise price
First exercise date
Last exercise date
13,846
13,846
130p
130p
April 2020
April 2020
October 2020
October 2020
Carpetright operated a SIP until January 2015, when it was closed as there were fewer than 50 participants. Neil Page participated in the
plan, but since closure shares are being transferred out of the trust to Neil as and when they are able to be transferred to him on a tax-free
basis. This will continue to January 2020 when all shares will have been transferred to him.
Summary of all share awards to Directors under the Long-term incentive and sharesave plans
Set out below is a summary of all share awards as at 29 April 2017.
Balance at
30 April
Date
2016
granted
Jul 141 128,449
Apr 152
5,187
Jul 15 119,324
–
–
–
– 285,684
–
13,846
252,960 299,530
Sept 16
Apr 17
Jan 143 69,169
Apr 142
2,227
Jul 141 66,603
Apr 152
2,593
64,991
Jul 15
Sept 16
Apr 17
–
–
–
–
–
– 155,601
–
13,846
205,583 169,447
Wilf
Walsh
Neil
Page
Notes:
Granted
during
year
Vested/
exercised
during year
Lapsed
during
year
Balance at
29 April
2017
Share price
at grant/
invitation
(p)
Market
price at
date of
vesting
Market
price at
date of
exercise
Exercise
price (p)
–
–
–
–
–
–
5,187
– 128,449
–
– 119,324
– 285,684
13,846
–
5,187 547,303
–
– 69,169
–
2,227
–
66,603
–
–
–
2,593
–
64,991
–
–
– 155,601
–
–
13,846
–
– 73,989 301,041
525.5
433
577
241
162
506
505
525.5
433
577
241
162
nil
347
nil
nil
130
nil
404
nil
347
nil
Nil
130
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Amount
realised
on
vesting
£000
Date from
which
exercisable
Expiry
date Scheme
Jul 17 Jul 27
LTIP
–
Apr 18 Oct 18 SAYE
–
LTIP
–
Jul 18 Jul 28
LTIP
– Sept 19 Sept 29
Apr 21 Oct 21 SAYE
–
LTIP
Jan 17 Jan 27
–
Apr 17 Oct 17 SAYE
–
Jul 17 Jul 27
LTIP
–
Apr 18 Oct 18 SAYE
–
LTIP
Jul 18 Jul 28
–
– Sept 19 Sept 29
LTIP
Apr 21 Oct 21 SAYE
–
1. The performance condition was met and the awards will vest in July 2017. An estimate of value has been included in the single figure table, although the awards have
yet to vest.
2. These options were cancelled in order to permit participation in the 2017 SAYE offer.
3. The performance condition was not met and the awards lapsed in January 2017.
56 | Annual report and accounts 2017
56 | Annual Report and Accounts 2017
Share ownership and shareholding guidelines for Directors (audited)
The Company had a share ownership policy that requires the Executive Directors to build up and maintain a target holding having a value
equal to the same multiple of base salary as awards are made under the LTIP (150% for Wilf Walsh, 125% for Neil Page). Until such a
holding is achieved, an Executive Director is obliged to retain shares with a minimum value equal to 50% of the post-tax vested shares
under the LTIP. The Executive Directors are required to hold the lower of 50% of their guideline level and 50% of the value of shares
they own at cessation of employment (excluding any shares purchased in the market) for a period of one year following cessation of
employment. As no LTIP awards have vested, all Directors have complied with the guidelines, although the holdings of Wilf Walsh
and Neil Page were below the target holding of base salary.
The beneficial interests of those individuals who were Directors as at 29 April 2017 and their immediate families in the ordinary shares of the
Company are set out in the table below. Additionally, the Executive Directors have an indirect interest in 365,248 shares held in trust to
satisfy awards made under the LTIP.
Financial
year
ended
Ordinary
shares
Ordinary
shares held
in the SIP1
Total holding of
ordinary shares
Value of
holding
as a % of
salary on
the last day of
the relevant
financial year2
Ordinary
shares under
option under the
Sharesave Plan3
Ordinary
shares subject
to outstanding
unvested awards
under the LTIP4
Total interest in
ordinary shares
2017
2016
2017
2016
53,778
41,278
38,042
27,771
–
–
5,000
–
–
–
740
1,011
–
–
–
–
53,778
41,278
38,782
28,782
–
–
5,000
–
26%
20%
29%
22%
–
–
–
–
13,846
5,197
13,846
4,820
533,457
247,773
287,195
200,763
–
–
–
–
–
–
–
–
601,081
294,248
339,823
234,365
–
–
5,000
–
Executive
Wilf Walsh
Neil Page
Non-Executive
Bob Ivell
Sandra Turner
David Clifford
Andrew Page
Notes:
1. Under the rules of the SIP, certain shares awarded to participants must be retained in the plan for a specified “holding period” of up to five years. The receipt of these
shares is not subject to the satisfaction of performance conditions. The shares held in the SIP will reduce over time as the SIP has closed. Please see page 56.
2. Share price used is the price as at 29 April 2017: 225p.
3. None of these options are subject to a performance condition. Details of the Sharesave interests can be found on page 56.
4. This column shows all unvested and outstanding awards under the LTIP that were held by the Executive Director concerned as at 29 April 2017 (i.e. including those
granted during the year). Details of these entitlements, the vesting of which is subject to the satisfaction of performance conditions, are set out on page 56.
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Directors’ reportStrategic reportShareholder informationFinancial statements
Directors’ report continued
Directors’ remuneration report continued
Application of the remuneration policy for the financial year ending 2018
Basic salary
For the 2017 pay review, the Chief Executive and the Chief Financial Officer indicated to the Committee that, in light of the performance of
the business, their base salaries should remain unchanged. The Committee therefore decided not to conduct a review of their pay and,
as a result, their base salaries remain unchanged. The current salaries of the Executive Directors are as follows:
Wilf Walsh
Neil Page
Base salary as at
30 April 2016
£459,000
£300,000
Current base
salary
Percentage
change
£459,000
£300,000
0%
0%
Benefits and pension
Benefits and pension will operate in the financial year ending 2018 as per their respective policies set out in the Policy Report
on pages 41 to 49.
Annual bonus plan performance targets
The annual bonus plan for the financial year ending 2018 will operate consistently with the policy detailed in the Policy Report on page 43.
Performance targets for the Executive Directors for the financial year ending 2018 will be based on a combination of Group underlying
profit (80% of the total opportunity) and strategic metrics linked to property (10% of the total opportunity), customer service (5% of the total
opportunity) and improved store disciplines (5% of the total opportunity). Payment in respect of the achievement of strategic objectives will
also be subject to an underpin based on the Group’s financial performance.
Consistent with our policy and the Group’s practice over a number of years, the Committee has set the percentage of bonus payable for
on-target performance in light of the degree of stretch in the targets and the affordability of the pay-outs to the Group. The range will be
to pay 0% unless a threshold level of performance has been achieved, 20% of maximum at threshold and 50% of maximum for achieving
target and maximum for achieving a stretch level of performance. Further details of the targets are currently commercially sensitive and the
Company will not be disclosing them at the start of the year. However, they will, unless they remain commercially sensitive, be disclosed
retrospectively in the 2018 Annual Report and Accounts.
Long-term incentive awards in the financial year ended 2018
The Committee intends to make the next awards under the LTIP during the summer of 2017. The awards for the Executive Directors will
be at 150% of base salary for Wilf Walsh and 125% for Neil Page and will vest three years from the date of grant, based on performance
over the three financial years beginning 30 April 2017. Awards will be made subject to a two-year post-vesting holding period and will
carry a dividend equivalent. The awards will vest according to performance against the cumulative underlying earnings per share,
as set out below:
Cumulative underlying earnings per share over the performance period
Less than 64.8p
64.8p
79.2p
% of award
that vests
(on a straight line
basis between
points)
Equivalent to
compound profit
growth from
financial year
ending 2017
0%
25%
100%
<14.8%
14.8%
22.8%
Vesting level
Nil
Threshold
Maximum
Non-Executive Directors’ fees
Non-Executive Directors’ fees have been reviewed and no changes were made. The current fees are as follows:
Base fee
Base fee
for SID
Chairman fee
(including base
fee and chairing
the Nomination
Committee)
£39,000
£44,000
£150,000
Additional
fee for
Committee
Chairman
£5,000
Current fees
58 | Annual report and accounts 2017
58 | Annual Report and Accounts 2017
Other information
Performance graph
The graph below shows the value, by 29 April 2017, of £100 invested in Carpetright plc on 2 May 2009 compared with that of £100
invested in the FTSE Small Cap Index and the FTSE All Share General Retailers Index, which the Directors believe to be the most suitable
broad comparators. The other points plotted are the values at intervening financial year-ends.
350
300
250
200
150
100
50
)
£
(
l
e
u
a
V
02-May-09
01-May-10
30-Apr-11
28-Apr-12
27-Apr-13
26-Apr-14
02-May-15
30-Apr-16
29-Apr-17
Carpetright
FTSE Small Cap Index
FTSE All Share General Retailers Index
Source: Thomson-Reuters
Statement of change in total remuneration of the Chief Executive
Total remuneration of individuals undertaking the role of Chief Executive in each of the past eight years is as follows:
Financial year
ended
Chief Executive1
2017
2016
2015
2015
2015
2014
2014
2014
2013
2013
2013
2012
2011
2010
Wilf Walsh
Wilf Walsh
Combined remuneration
Wilf Walsh (21 July 2014 to 30 April 2015)
Lord Harris (1 May 2014 to 20 July 2014)
Combined remuneration
Lord Harris (3 October 2013 to 30 April 2014)
Darren Shapland (1 May 2013 to 3 October 2013)
Combined remuneration
Darren Shapland (14 May 2012 to 30 April 2013)
Lord Harris (1 May 2012 to 14 May 2012)
Lord Harris
Lord Harris
Lord Harris
Total remuneration
of Chief Executive2
£’000
Annual variable
element award
rates for Chief
Executive
(as % of max.
opportunity)
Long-term
incentive
vesting rates for
Chief Executive
(as % of max.
opportunity)
800
819
842
749
93
490
249
241
1,025
1,007
18
522
522
721
0%
52%
86%
0%
0%
0%
29%
0%
0%
0%
37%
75%
0%
0%
0%
0%
0%
0%
0%
0%
0%
26%
Notes:
1. Lord Harris stood down as Chief Executive in May 2012, at which point Darren Shapland was appointed Chief Executive. Darren Shapland stood down on 3 October
2013, at which point Lord Harris was appointed as full-time Executive Chairman. Wilf Walsh joined as Chief Executive on 21 June 2014, at which point Lord Harris
ceased to fulfil that role.
2. The amounts shown in this column have been calculated using the same methodology prescribed by the Regulations for the purposes of preparing the single total
figure table shown on page 52.
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Directors’ reportStrategic reportShareholder informationFinancial statements
Directors’ report continued
Directors’ remuneration report continued
Statement of change in pay of individuals undertaking the role of Chief Executive compared to other employees
The table below shows the movement in the remuneration for the role of Chief Executive between the current and previous financial year
compared to the average (per full-time equivalent) for all employees.
Chief Executive Officer
Average per employee
Bonus figures include commission payments.
Salary
% change
Benefits
% change
Bonus/payments
as a result of
performance
% change
0
2%
0
(3%)
(8%)
(2%)
Relative importance of spend on pay
The table below illustrates the change in expenditure on remuneration paid to all the employees of the Group and distributions to
shareholders from the financial year ending 30 April 2016 to the financial year ending 29 April 2017.
Overall expenditure on pay
Dividend plus share buyback
2017
£m
90.0
–
2016
£m
90.7
–
Percentage
change
(1%)
–
These matters were selected to be shown as they represent key distributions by the Group to its stakeholders. Further details on overall
expenditure on pay can be found in note 4 to the financial statements on pages 77 to 78.
By order of the Board
Sandra Turner
Chairman of the Remuneration Committee
26 June 2017
60 | Annual report and accounts 2017
60 | Annual Report and Accounts 2017
Other information
This section contains the remaining matters
on which the Directors are required to report
each year, which do not appear elsewhere
in this Directors’ Report. Certain other
matters required to be reported on appear
elsewhere in the Report and Accounts as
detailed below, and each forms part of this
Directors’ Report:
– the Strategic Report, including an
indication of likely future developments
in the business, appears from the inside
front cover to page 29;
– the Directors’ remuneration report
appears on pages 39 to 60;
– the going concern statement appears
on page 25;
– the viability statement appears
on page 25;
– a list of the subsidiary and associated
undertakings, including branches outside
the UK, appears on page 86;
– changes in asset values are set out in the
consolidated balance sheet on page 67
and in the notes to the financial
statements on pages 69 to 101;
– the Group’s profit before taxation and the
profit after taxation and minority interests
appear in the consolidated income
statement on page 65;
– a detailed statement of the Group’s
treasury management and funding is set
out in note 23 to the financial statements
on pages 94 to 96;
– matters concerning the employment etc.
of disabled persons appear on page 28;
– details of employee involvement appear
on page 28;
– disclosures concerning greenhouse gas
emissions appear on page 29;
– a statement that this Annual Report and
Accounts meets the requirements of
Provision C.1.1 of the UK Corporate
Governance Code (‘the Code’) is set
out on page 32; and
− in accordance with Listing Rule 9.8.4,
details of dividend waivers appear on
page 62.
Directors’ interests
Directors’ share interests are disclosed in
the Directors’ report on remuneration on
page 57. Except as disclosed in this report,
no Director had a material interest in any
contract or arrangement with the Company
during the year, other than through their
respective service contracts. Some
Directors made purchases of the
Company’s products in the period,
on normal commercial terms available
to all employees.
Directors’ indemnity
arrangements
The Company has provided qualifying third-
party indemnities for the benefit of each
Director who held office during the financial
year ended 2017. The Company has also
purchased and maintained Directors’ and
Officers’ liability insurance throughout the
financial year ended 2017.
Significant agreements –
change of control
There are a number of agreements that take
effect, alter or terminate upon a change of
control of the Company following a takeover
bid, such as bank loan agreements and
employee share plans. None of these are
deemed to be significant in terms of their
potential impact on the business of the
Group as a whole, except for:
– a term loan and revolving facilities
agreement dated 19 March 2008, as
amended and restated most recently
on 29 April 2015. There is a revolving
credit facility of £45m, which provides
that on a change of control all lenders’
commitments are cancelled and all
outstanding loans, together with accrued
interest, will become immediately due
and payable and an uncommitted
overdraft of £7.5m. Details of balances
at the financial year end can be found
in note 23 to the consolidated financial
statements; and
− under the Company’s all-employee and
discretionary share schemes, a change of
control of the Company would normally
be a vesting event, facilitating the exercise
or transfer of awards, subject to any
relevant performance conditions
being satisfied.
The Company does not have agreements
with any Director or officer that would
provide compensation for loss of office
or employment resulting from a takeover,
except that provisions in the Company’s
share plans may cause options and
awards granted under such plans to
vest on a takeover.
There is no information that the Company
would be required to disclose about
persons with whom it has contractual or
other arrangements which are essential
to the business of the Company.
Share capital
Details of the Company’s issued share
capital can be found in note 24 to the
financial statements. All of the Company’s
issued ordinary shares are fully paid up
and rank equally in all respects.
The rights and obligations attaching to
the Company’s ordinary shares, in addition
to those conferred on their holders by law,
are contained in the Company’s Articles
of Association, copies of which can be
obtained from Companies House in the
UK or by writing to the Company Secretary.
The holders of ordinary shares are entitled
to receive the Company’s report and
accounts, to attend and speak at general
meetings of the Company, to appoint
proxies and to exercise voting rights.
There are no restrictions on the transfer of
ordinary shares or on the exercise of voting
rights attached to them, except (i) where the
Company has exercised its right to suspend
their voting rights or to prohibit their transfer
following the omission of their holder or any
person interested in them to provide the
Company with information requested
by it in accordance with Part 22 of the
Companies Act 2006 or (ii) where their
holder is precluded from exercising voting
rights by the FCA’s Listing Rules or the City
Code on Takeovers and Mergers.
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61
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Directors’ reportStrategic reportShareholder informationFinancial statements
Directors’ report continued
Other information continued
The Company is not aware of any
agreements between shareholders that
might result in the restriction of transfer or
voting rights in relation to the shares held by
such shareholders.
Shares acquired through Carpetright’s
employee share schemes rank equally
with all other ordinary shares in issue and
have no special rights. The Trustee of the
Company’s Employee Benefit Trust (‘EBT’)
has waived its rights to dividends on shares
held by the EBT and does not exercise its
right to vote in respect of such shares.
Shares held in trust on behalf of participants
in the All Employee Share Ownership Plan
are voted by the Trustee as directed by
the participants. Details of share-based
payments, including information regarding
the shares held by the EBT, can be found in
notes 24 and 25 to the financial statements
on pages 96 to 98.
Substantial shareholdings
As at 26 June 2017, the Company has
been notified of the following substantial
shareholdings in accordance with the
Disclosure and Transparency Rules, other
than those of the Directors, in the issued
share capital of the Company:
Shares
held as a
percentage
of the issued
share capital
19%
13%
9%
6%
5%
5%
5%
Franklin Templeton
Institutional, LLC
The Olayan Group
FIL Limited
Meditor
Aberforth
Wellcome Trust
Majedie
Donations
No political donations were made during the
year (2016: £nil).
Shareholders’ views
There is a formal investor relations
programme based around the results
presentations and interim management
statements. All of the Non-Executive
Directors are available to attend meetings
should shareholders so request. The
Chairman and Executive Directors feed
back any investor comments to the Board.
All Directors normally attend the Annual
General Meeting and are available to
answer any questions that shareholders
may raise.
All shareholders will have at least 20
working days’ notice of the Annual General
Meeting. As required by the Code, the
Board will, at the 2017 Annual General
Meeting, announce the proxy votes in
favour of and against each resolution
following a vote by a show of hands,
and the votes cast will be posted on
the corporate website.
Authority to purchase
own shares
At the 2016 Annual General Meeting,
shareholders gave the Company renewed
authority to purchase a maximum of
6,792,447 shares of one penny each.
This resolution remains valid until the date of
this year’s Annual General Meeting. As at
29 April 2017, the Directors had not used
this authority. The Company’s present
intention is to cancel any shares acquired
under such authority, unless purchased to
satisfy outstanding awards under employee
share incentive plans. A resolution seeking
renewal of the authority will be proposed at
this year’s Annual General Meeting.
Statement of directors’
responsibilities
The Directors are responsible for preparing
the Annual Report, the Directors’
remuneration report and the financial
statements in accordance with applicable
laws and regulations.
UK company law requires the Directors
to prepare financial statements for each
financial year. Under that law, the Directors
have prepared the Group and Parent
Company financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted
by the European Union. The financial
statements are required by law to give a
true and fair view of the state of affairs of
the Company and the Group and of the
profit or loss of the Company and Group
for that period.
In preparing those financial statements,
the Directors are required to:
– select suitable accounting policies and
then apply them consistently;
– make judgments and estimates that are
reasonable and prudent;
– state that the financial statements
comply with IFRSs as adopted by the
European Union; and
− prepare the financial statements on
the going concern basis, unless it is
inappropriate to presume that the Group
will continue in business, in which case
there should be supporting assumptions
or qualifications as necessary.
The Directors are responsible for keeping
proper accounting records that disclose
with reasonable accuracy at any time the
financial position of the Company and the
Group and to enable them to ensure that
the financial statements and the Directors’
remuneration report comply with the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation. They are also responsible
for safeguarding the assets of the Company
and the Group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information on the Company’s
websites. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
62 | Annual report and accounts 2017
62 | Annual Report and Accounts 2017
Disclosure of information
to auditors
Each of the Directors of the Company has
confirmed that, as far as they are aware,
there is no relevant audit information of
which the auditors are unaware and that
each Director has taken all steps to make
themselves aware of any relevant audit
information and to establish that the
Company’s auditors are aware of
that information.
Annual General Meeting
The 2017 Annual General Meeting of the
Company will be held on 7 September
2017 at Carpetright plc, Purfleet Bypass,
Purfleet, Essex RM19 1TT at 12:00 p.m.
A full description of the business to be
conducted at the meeting is set out in the
separate Notice of Annual General Meeting.
The Directors’ Report was approved and
signed by order of the Board
Jeremy Sampson
Company Secretary and Legal Director
26 June 2017
Each of the Directors whose names and
details are set out on pages 30 and 31 of
this report confirms that to the best of
their knowledge:
– the financial statements, which have been
prepared in accordance with IFRSs as
adopted by the EU, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the Company
and the undertakings included in the
consolidation taken as a whole; and
− the Strategic Report and the Directors’
Report include a fair review of the
development and performance of
the business and the position of the
Company and the undertakings included
in the consolidation taken as a whole,
together with a description of the principal
risks and uncertainties that they face.
Statement of the directors in
respect of the annual report
and financial statements
As required by the Code, the Directors
confirm that they consider that the Annual
Report, taken as a whole, is fair, balanced
and understandable and provides the
information necessary for shareholders
to assess the Company’s performance,
business model and strategy. When
arriving at this position the Board was
assisted by a number of processes,
including the following:
– the Annual Report is drafted by
appropriate senior management
with overall co-ordination by the Chief
Financial Officer to ensure consistency
across sections;
– an extensive verification exercise is
undertaken to ensure factual accuracy;
– comprehensive reviews of drafts
of the Report are undertaken by the
Executive Directors and other senior
management; and
− a draft is considered by the Audit
Committee prior to consideration by
the Board.
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Directors’ reportStrategic reportShareholder informationFinancial statements
Financial statements
Contents
Consolidated income statement
Consolidated statement of
comprehensive income
Statements of change in equity
Balance sheets
Statements of cash flow
Notes to the financial statements
Group five-year financial summary
Independent auditors’ report
Shareholder information
65
65
66
67
68
69
102
103
109
64 | Annual report and accounts 2017
Financial statements
Consolidated income statement
for 52 weeks ended 29 April 2017
Revenue
Cost of sales
Gross profit
Administration expenses
Other operating income/(loss)
Operating profit/(loss)
Finance costs
Profit/(loss) before tax
Tax
Profit/(loss) for the financial period attributable
to equity shareholders of the Company
Basic earnings per share (pence)
Diluted earnings per share (pence)
Group 52 weeks to 29 April 2017
Underlying
performance
£m
457.6
(188.2)
269.4
(255.4)
2.4
16.4
(2.0)
14.4
(3.3)
Separately
reported
items
£m
–
–
–
(9.3)
(4.2)
(13.5)
–
(13.5)
3.1
11.1
(10.4)
16.4
Notes
2
2
2,3
6
7
9
9
Total
£m
457.6
(188.2)
269.4
(264.7)
(1.8)
2.9
(2.0)
0.9
(0.2)
0.7
1.0
1.1
Group 52 weeks to 30 April 2016
Reclassified*
Separately
reported
items
£m
–
–
–
(1.9)
(3.6)
(5.5)
–
(5.5)
1.5
Underlying
performance
£m
456.8
(182.6)
274.2
(255.8)
1.9
20.3
(2.0)
18.3
(4.2)
Total
£m
456.8
(182.6)
274.2
(257.7)
(1.7)
14.8
(2.0)
12.8
(2.7)
14.1
(4.0)
10.1
20.8
14.9
14.9
* Certain prior year amounts, previously reported in underlying performance, have been reclassified for consistency with the current period presentation as separately
reported items. This has no impact on the Group statutory reported profit before tax and earnings per share (see note 5).
Consolidated statement
of comprehensive income
for 52 weeks ended 29 April 2017
Profit for the financial period
Items that may not be reclassified to the income statement:
Re-measurement of defined benefit plans
Tax on items that may not be reclassified to the income statement
Total items that may not be reclassified to the income statement
Items that may be reclassified to the income statement:
Exchange gains
Total items that may be reclassified to the income statement
Other comprehensive income for the period
Total comprehensive income for the period attributable to equity shareholders
of the Company
Notes
22
7
Group
52 weeks to
29 April
2017
£m
0.7
Group
52 weeks to
30 April
2016
£m
10.1
(1.8)
0.1
(1.7)
4.3
4.3
2.6
3.3
1.1
(0.4)
0.7
3.2
3.2
3.9
14.0
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Financial statementsStrategic reportShareholder informationDirectors’ report
Financial statements continued
Statements of changes in equity
for 52 weeks ended 29 April 2017
Group
At 2 May 2015
Profit for the period
Other comprehensive income for the financial period
Total comprehensive income for the financial period
Issue of new shares
Purchase of own shares by employee benefit trust
Share based payments and related tax
At 30 April 2016
Profit for the period
Other comprehensive income for the financial period
Total comprehensive income for the financial period
Purchase of own shares by employee benefit trust
Share based payments and related tax
At 29 April 2017
Company
At 2 May 2015
Profit for the period
Other comprehensive income for the financial period
Total comprehensive income for the financial period
Issue of new shares
Purchase of own shares by employee benefit trust
Share based payments and related tax
At 30 April 2016
Profit for the period
Other comprehensive income for the financial period
Total comprehensive income for the financial period
Purchase of own shares by employee benefit trust
Share based payments and related tax
At 29 April 2017
Share
capital
£m
0.7
–
–
–
–
–
–
0.7
–
–
–
–
–
0.7
Share
capital
£m
0.7
–
–
–
–
–
–
0.7
–
–
–
–
–
0.7
Share
premium
£m
17.4
–
–
–
0.4
–
–
17.8
–
–
–
–
–
17.8
Share
premium
£m
17.4
–
–
–
0.4
–
–
17.8
–
–
–
–
–
17.8
Treasury
shares
£m
(0.4)
–
–
–
–
(0.9)
–
(1.3)
–
–
–
(0.3)
–
(1.6)
Treasury
shares
£m
(0.4)
–
–
–
–
(0.9)
–
(1.3)
–
–
–
(0.3)
–
(1.6)
Capital
redemption
reserve
£m
0.1
–
–
–
–
–
–
0.1
–
–
–
–
–
0.1
Capital
redemption
reserve
£m
0.1
–
–
–
–
–
–
0.1
–
–
–
–
–
0.1
Translation
reserve
£m
0.1
–
3.2
3.2
–
–
–
3.3
–
4.3
4.3
–
–
7.6
Retained
earnings
£m
41.6
10.1
0.7
10.8
–
–
1.0
53.4
0.7
(1.7)
(1.0)
–
1.0
53.4
Translation
reserve
£m
(0.4)
–
0.1
0.1
–
–
–
(0.3)
–
–
–
–
–
(0.3)
Retained
earnings
£m
29.3
7.2
0.7
7.9
–
–
1.0
38.2
(6.3)
(1.7)
(8.0)
–
1.0
31.2
Total
£m
59.5
10.1
3.9
14.0
0.4
(0.9)
1.0
74.0
0.7
2.6
3.3
(0.3)
1.0
78.0
Total
£m
46.7
7.2
0.8
8.0
0.4
(0.9)
1.0
55.2
(6.3)
(1.7)
(8.0)
(0.3)
1.0
47.9
66 | Annual report and accounts 2017
66 | Annual Report and Accounts 2017
Balance sheets
as at 29 April 2017
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment property
Investment in subsidiary undertakings
Deferred tax assets
Trade and other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Obligations under finance leases
Borrowings and overdrafts
Current tax liabilities
Total current liabilities
Non-current liabilities
Trade and other payables
Obligations under finance leases
Provisions for liabilities and charges
Deferred tax liabilities
Retirement benefit obligations
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Treasury shares
Other reserves
Total equity attributable to equity shareholders of the Company
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
Notes
10
11
12
13
21
15
14
15
16
57.3
102.0
15.3
–
1.9
0.4
176.9
41.1
25.8
12.5
79.4
57.1
95.0
14.5
–
1.9
0.5
169.0
41.6
20.0
8.3
69.9
27.8
67.6
2.3
15.7
–
42.1
155.5
35.4
17.0
9.3
61.7
29.2
63.4
4.9
15.7
–
43.4
156.6
35.7
14.2
5.5
55.4
2
256.3
238.9
217.2
212.0
17
18
19
17
18
20
21
22
2
24
24
24
(83.9)
(0.1)
(20.1)
(1.7)
(105.8)
(34.5)
(2.1)
(17.5)
(15.2)
(3.2)
(72.5)
(178.3)
78.0
0.7
17.8
(1.6)
61.1
78.0
(88.8)
(0.1)
(7.1)
(2.3)
(98.3)
(34.3)
(2.2)
(12.6)
(15.3)
(2.2)
(66.6)
(164.9)
74.0
0.7
17.8
(1.3)
56.8
74.0
(72.5)
(0.1)
(20.1)
(1.7)
(94.4)
(44.2)
(1.0)
(17.5)
(9.0)
(3.2)
(74.9)
(169.3)
47.9
0.7
17.8
(1.6)
31.0
47.9
(77.6)
(0.1)
(7.1)
(2.4)
(87.2)
(43.4)
(1.1)
(12.3)
(10.6)
(2.2)
(69.6)
(156.8)
55.2
0.7
17.8
(1.3)
38.0
55.2
These financial statements from pages 65 to 101 were approved by the Board of Directors on 26 June 2017 and were signed on its
behalf by:
Wilf Walsh
Directors
Neil Page
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Financial statements continued
Statements of cash flow
for 52 weeks ended 29 April 2017
Cash flows from operating activities
Profit /(loss)before tax
Adjusted for:
Depreciation and amortisation
Loss on property disposals
Separately reported non-cash items
Share based payments
Net finance costs
Operating cash flows before movements in working capital
Decrease/(Increase) in inventories
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Net expenditure on exit of operating leases
Contributions to pension schemes
Provisions paid
Cash generated by operations
Interest paid
Corporation taxes paid
Net cash generated from operating activities
Cash flows from investing activities
Purchases of intangible assets
Purchases of property, plant and equipment and investment property
Proceeds on disposal of property, plant, equipment & investment property
Interest received
Net cash generated used in investing activities
Cash flows from financing activities
Issue of new shares
Purchase of treasury shares by employee benefit trust
Repayment of finance lease obligations
Movement in borrowings
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents in the period
Cash and cash equivalents at the beginning of the period
Exchange differences
Cash and cash equivalents at the end of the period
Group
52 weeks to
29 April
2017
£m
Group
52 weeks to
30 April 2016
£m
Company
52 weeks to
29 April
2017
£m
Company
52 weeks to
30 April 2016
£m
Notes
0.9
12.8
(7.9)
9.0
2,3
6
29
29
29
16, 29
12.2
3.3
9.2
1.0
2.0
28.6
1.0
(5.4)
(8.2)
(2.2)
(0.9)
(5.2)
7.7
(1.3)
(0.9)
5.5
(0.6)
(16.8)
3.4
–
(14.0)
–
(0.3)
(0.3)
13.0
12.4
3.9
1.2
0.3
5.4
12.5
3.6
0.9
1.0
2.0
32.8
(7.0)
6.2
(10.5)
(2.2)
(0.9)
(5.1)
13.3
(2.0)
(3.0)
8.3
(1.8)
(10.1)
2.2
–
(9.7)
0.4
(0.9)
(0.2)
–
(0.7)
(2.1)
2.9
0.4
1.2
10.0
3.1
11.4
1.0
1.8
19.4
0.4
(1.0)
(6.0)
(2.1)
(0.9)
(5.0)
4.8
(1.4)
(0.9)
2.5
(0.6)
(13.6)
2.8
0.3
(11.1)
–
(0.3)
(0.2)
13.0
12.5
3.9
(1.6)
(0.1)
2.2
10.3
3.5
1.1
1.0
1.7
26.6
(7.2)
10.0
(10.2)
(2.2)
(0.9)
(4.9)
11.2
(2.1)
(3.1)
6.0
(1.8)
(8.0)
1.4
0.2
(8.2)
0.4
(0.9)
(0.1)
–
(0.6)
(2.8)
0.8
0.4
(1.6)
For the purposes of the cash flow statement, cash and cash equivalents are reported net of overdrafts repayable on demand. Overdrafts
are excluded from the definition of cash and cash equivalents disclosed in the balance sheet and are included in borrowings and overdrafts
under current liabilities.
68 | Annual report and accounts 2017
68 | Annual Report and Accounts 2017
Notes to the financial statements
1. Principal accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies
have been consistently applied to all the periods presented unless otherwise stated.
General information
Carpetright plc (‘the Company’) and its subsidiaries (together, ‘the Group’) are retailers of floorcoverings and beds. The Company is
listed on the London Stock Exchange and incorporated in England and Wales and domiciled in the United Kingdom. The address
of its registered office is Carpetright plc, Purfleet Bypass, Purfleet, Essex, RM19 1TT.
The nature of the Group’s operations and its principal activities are set out on pages 4 to 5 of the Annual Report.
Basis of preparation
The consolidated financial statements of the Group and the Company are drawn up to within seven days of the accounting record date,
being 30 April of each year. The financial period for 2017 represents the 52 weeks ended 29 April 2017. The comparative financial period
for 2016 was 52 weeks ended 30 April 2016.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and
International Financial Reporting Interpretations Committee (IFRS IC) interpretations as adopted by the European Union, together with
those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared on the historical cost basis except for pension assets and liabilities and
share based payments which are measured at fair value.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present its income statement
and statement of comprehensive income. The loss for the Company for the period was £6.3m (2016: profit of £7.2m).
Going concern
The Group meets its day to day working capital requirements through its bank facilities. The principal banking facility, which includes a
revolving credit facility for £45 million, is committed to the end of July 2019. The Directors have considered the future cash requirements
of the Group and are satisfied that the facilities are sufficient to meet its liquidity needs. The facilities are subject to a number of financial
covenants, which remain unchanged, being a leverage covenant, a fixed charge cover covenant, a clear down covenant and a capital
expenditure covenant. The fixed charge cover covenant is the most sensitive to changes in the Group’s profitability. The Group was
compliant with all covenants as at the year end.
The Directors have considered the expected performance of the business over at least the next twelve months and modelled this
performance against the covenants that have been set. In addition, the Directors have considered the trading performance necessary
to result in a breach of the banking covenants as well as mitigating factors that would be available and actionable in the event that the
adverse performance became reality.
The Directors have also considered the net current liability position of the Group and given the supplier payment terms and the expected
cash generation, the Directors confirm that the Group is forecast to be able to meet its liabilities as they fall due.
The Directors confirm that, after considering the matters set out above, they have a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for a minimum of twelve months following the signing of these
accounts. For this reason they continue to adopt the going concern basis in preparing the financial statements.
Further information on the Group’s borrowings is given in note 19.
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Financial statements continued
Notes to the financial statements continued
1. Principal accounting policies continued
Alternative Performance Measures
The Company uses a number of Alternative Performance Measures (APMs) in addition to those reported in accordance with IFRS. The
Directors believe that these APMs, listed below, are important when assessing the underlying financial and operating performance of the
Group and its segments. The following APMs do not have standardised meaning prescribed by IFRS and therefore may not be directly
comparable to similar measures presented by other companies.
Underlying performance
Underlying performance, reported separately on the face of the Consolidated Income Statement, is from continuing operations and before
separately reported items on the face of the income statement.
Sales
Sales represents amounts payable by customers for goods and services before deducting VAT and other charges.
Like-for-like sales (calculated in local currency)
Calculated as this year’s sales compared to last year’s sales for all stores that are at least 12 months old at the beginning of our financial
year. Stores closed during the year are excluded from both years. No account is taken of changes to store size or introduction of third
party concessions.
Gross profit ratio
Calculated as Gross profit as a percentage of revenue. It is one of the Group’s key performance indicators and is used to assess the
underlying performance of the Group’s segments.
Separately reported items
Defined below.
Underlying operating profit
Underlying operating profit is defined as operating profit before separately reported items. It is one of the Group’s key performance
indicators and is used to assess the trading performance of Group businesses.
Underlying profit before tax
Underlying profit before tax is calculated as the net total of underlying operating profit less total net finance costs associated with underlying
performance. It is one of the Group’s key performance indicators and is used to assess the financial performance of the Group as a whole.
It is also used as one of the targets against which the annual bonuses of certain employees are measured.
Underlying earnings per share
Underlying earnings per share is calculated by dividing underlying profit before tax less associated income tax costs by the weighted
average number of ordinary shares in issue during the year. It is one of the Group’s key performance indicators and is used to assess
the underlying earnings performance of the Group as a whole.
Net debt
Net debt comprises the net total of current and non-current interest-bearing borrowings and cash and short-term deposits. Net debt is
a measure of the Group’s net indebtedness to banks and other external financial institutions.
Operating cash flow
This measure is determined by taking underlying operating profit and adding back non-cash items and any movements in working capital.
Disclosure of ‘separately reported items’
IAS 1 ‘Presentation of Financial Statements’ provides no definitive guidance as to the format of the income statement but states key lines
which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face of
the income statement when appropriate for a proper understanding of the entity’s financial performance. In accordance with IAS 1, the
Company has adopted a columnar presentation for its Consolidated income statement, to separately identify underlying performance
results, as the Directors consider that this gives a better view of the underlying results of the ongoing business. As part of this presentation
format, the Company has adopted a policy of disclosing separately on the face of its Consolidated income statement, within the column
entitled ‘Separately reported items’, the effect of any components of financial performance for which the Directors consider separate
disclosure would assist both in a better understanding of the financial performance achieved. In its adoption of this policy, the Company
applies an balanced approach to both gains and losses and aims to be both consistent and clear in its accounting and disclosure of
such items.
Both size and the nature and function of the components of income and expense are considered in deciding upon such presentation.
Such items may include, inter alia, the financial effect of separately reported items which occur infrequently, such as major reorganisation
costs, onerous leases and impairments and the taxation impact of the aforementioned separately reported items.
70 | Annual report and accounts 2017
70 | Annual Report and Accounts 2017
1. Principal accounting policies continued
New and amended accounting standards adopted by the Group
None of the new standards and amendments to standards that are mandatory for the first time for the financial period commencing
1 May 2016 had a material effect on the consolidated financial statements of the Group in the current period or any prior period, and
are not likely to affect future periods.
New standards and interpretations not yet adopted
A number of new standards and interpretations and amendments to existing standards were issued but not yet effective nor adopted by
the EU, and have not been applied in preparing these consolidated financial statements:
− IFRS 9 ‘Financial Instruments’ is a new standard which enhances the ability of investors and other users of financial information to understand
the accounting for financial assets and reduces complexity. The standard uses a single approach to determine whether a financial asset is
measured at amortised cost or fair value, replacing the various rules in IAS 39, and also introduces a new expected loss impairment model.
This standard is effective for accounting periods commencing on or after 1 January 2018.
− IFRS 15 ‘Revenue from Contracts with Customers’ is a new standard based on a five-step model framework, which replaces all existing
revenue recognition standards. The standard requires revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard
is effective for accounting periods commencing on or after 1 January 2018.
− IFRS 16 ‘Leases’ is a new standard which sets out the principles for the recognition, measurement, presentation and disclosure of leases for
both parties to a contract. The standard eliminates the classification of leases as either operating leases or finance leases as required by IAS
17 and, instead, introduces a single lessee accounting model. A lessee will be required to recognise assets and liabilities for all leases with a
term of more than 12 months and depreciate lease assets separately from interest on lease liabilities in the income statement. This standard
is effective for accounting periods commencing on or after 1 January 2019.
The Directors anticipate that the adoption of IFRS 9 and IFRS 15 are not expected to have a material impact, whereas IFRS 16 will
materially impact on the financial statements of the Group. Management is currently undertaking an exercise to quantify the impact.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of a subsidiary
so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group
transactions, balances, income and expenses are eliminated on consolidation.
Exchange differences
The consolidated financial statements are presented in pounds Sterling, which is the Company’s functional and presentation currency.
Transactions in foreign currencies, which are those other than the functional currency of an entity, are recorded at the opening rate for
the month in which the transaction occurs which is used as a reasonable approximation to the rate at the transaction date. Monetary
assets and liabilities denominated in foreign currency are translated at the rates ruling at the balance sheet date. Resulting exchange
gains or losses are recognised in the income statement for the period, except where they are part of a net foreign investment hedge,
when they are recognised in equity.
On consolidation, the assets and liabilities of the Group’s foreign operations are translated at the rate of exchange ruling at the balance
sheet date. Income and expenses of foreign operations are translated at the average rate during the period. Differences on translation
are recognised as a separate component in other comprehensive income. On disposal of a foreign operation, the cumulative exchange
differences for that operation are recognised in the income statement as part of the profit or loss on disposal.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of that operation
and are translated at the rate ruling at the balance sheet date and are recognised in other comprehensive income.
Segment reporting
Segmental information is presented using a ‘management approach’ on the same basis as that used for internal reporting to the
Chief Operating Decision Maker. The Chief Operating Decision Maker, who is responsible for resource allocation and assessing
performance of the operating segments, has been identified as the Board of Directors.
Revenue
Revenue is measured at the fair value of the consideration received or receivable for the provision of goods and services to customers
outside the Group, net of returns, sales allowances, charges for the provision of interest free credit and value added and other sales
based taxes. Revenue from goods and services is recognised at the point the Group fulfils its commercial obligations to the customer,
the revenue and costs in respect of the transaction can be measured reliably and collectability is reasonably assured.
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Financial statements continued
Notes to the financial statements continued
1. Principal accounting policies continued
Share based payments
The Group issues equity-settled share based payments to certain employees, the terms of these payments do not contain any market
conditions. The fair value of the employee services received in exchange for the grant of options is recognised as an expense. The value
of the charge is adjusted to reflect expected and actual levels of options vesting. The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options granted, excluding the impact of any service and performance conditions that are
included in the assumptions about the number of options which are expected to become exercisable. At each balance sheet date, the
Group revises its estimates of the number of options which are expected to become exercisable. It recognises the impact of the revision
of original estimates, if any, in the income statement and a corresponding adjustment to equity over the vesting period.
Treasury shares
Own equity instruments that are reacquired (Treasury shares) are recognised at cost and deducted from equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Any difference between
the carrying amount and the consideration, if reissued, is recognised in the share premium reserve.
Other operating income
Rental income earned on investment property is recognised in other operating income, in accordance with the substance of the relevant
rental agreements.
Tax
Current tax liabilities are measured at the amount expected to be paid, based on tax rates and laws that are enacted or substantively
enacted at the balance sheet date in the countries where the Company’s subsidiaries operate and generate taxable income.
Deferred tax expected to be payable or recoverable on differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax is calculated at the rates of tax that are expected to apply when the asset or liability is settled, based on tax rates that
have been enacted or substantively enacted by the balance sheet date, and is not discounted.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset the current tax assets against the current
tax liabilities and it is the intention to settle these on a net basis.
Tax is charged or credited directly to other comprehensive income if it relates to items that are credited or charged to equity; otherwise,
it is recognised in the income statement.
Dividends
Dividend distribution to the Company’s shareholders is recognised as a liability in the financial statements in the period in which the
dividends are approved by the Company’s shareholders or, in the case of interim dividends, paid.
Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the
acquired entity. For the purposes of impairment, goodwill is allocated to each cash-generating unit (or groups of cash-generating units)
that is expected to benefit from the business combination. Goodwill is not amortised, but is reviewed for impairment at least annually or
when there is an indication of impairment. Any impairment is recognised immediately in the income statement and is not subsequently
reversed. On disposal of a subsidiary the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Impairment
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested at least annually for impairment
or when there is an indication of impairment. Assets that are subject to amortisation and depreciation are reviewed for indications of
impairment at each balance sheet date. If there is an indication of impairment, the recoverable amount of either the asset or the cash-
generating unit to which it belongs is estimated. Cash-generating units are used where an individual asset does not generate cash flows
which are independent of other assets. The recoverable amount of a non-financial asset is the higher of its fair value less costs to sell and
its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset or cash-generating unit.
An impairment loss is recognised in the income statement whenever the carrying amount of an asset or cash-generating unit exceeds its
recoverable amount. Non-financial assets other than goodwill that suffer impairment are reviewed for possible reversal of impairment at
each reporting date.
72 | Annual report and accounts 2017
72 | Annual Report and Accounts 2017
1. Principal accounting policies continued
Other intangible assets
Purchased brand names and other intangible assets are capitalised at cost. Acquired software licences and software development
costs are capitalised on the basis of the costs incurred to acquire and bring into use the specific software.
Amortisation of intangible assets is calculated to write off the cost of the asset, on a straight line basis, over its expected useful life.
The expected useful lives generally applicable are:
Brands
Computer software
20 years
5 to 10 years
Property, plant and equipment
Property, plant and equipment is shown at cost less accumulated depreciation and any provisions for impairment in value.
Depreciation is provided to write down the cost of property, plant and equipment, on a straight line basis, to their estimated residual
values over their estimated useful lives. Freehold land is not depreciated. The estimated useful lives and residual values of assets
are reviewed annually.
The estimated useful lives by asset category that are generally applicable are:
Freehold and long leasehold buildings
Short leasehold buildings
Fixtures and fittings
Computers
Other plant and machinery
50 years
The shorter of the period of the lease and the estimated useful life
3 to 15 years, except for fixed racking which is depreciated over 25 years
5 to 7 years
7 to 10 years
Borrowing costs
Gross interest costs incurred on the financing of major projects are capitalised until the time that they are available for use. Unless a specific
borrowing is taken out to finance the asset, interest is capitalised using the weighted average interest rate of all non-specific borrowings.
Where a specific borrowing is taken out to finance the asset, interest is capitalised at the rate applicable to that borrowing.
Investment property
Property that is held to earn rental income and for capital appreciation is separately disclosed as investment property. Investment property
is carried at depreciated historical cost. Depreciation rates and useful lives of investment property are the same as those for property, plant
and equipment.
Leasing commitments
Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards of ownership to the
Group. All other leases are classified as operating leases.
Assets used by the Group which have been funded through finance leases are capitalised in property, plant and equipment and the
resulting lease obligations are included in payables. The assets are depreciated over the shorter of their useful lives and the period
of the lease. The interest element of the rental obligations is charged to the income statement over the period of the lease and
represents a constant proportion of the balance of capital repayments outstanding.
Rentals payable under operating leases are charged to income on a straight line basis over the period of the lease. Premiums payable, rent
free periods and contributions receivable on entering an operating lease are charged or credited to income on a straight line basis over the
lease term.
Investment in subsidiaries
The Company’s investment in subsidiary undertakings is recognised at cost and is accounted for net of impairment losses. Income from
investments is recognised in the income statement to the extent that post acquisition profits are received. Distributions of pre-acquisition
profits reduce the cost of the investment.
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Financial statements continued
Notes to the financial statements continued
1. Principal accounting policies continued
Inventories
Inventories are valued at the lower of weighted average cost and net realisable value. Net realisable value is based on estimated selling
prices less further costs to be incurred to disposal. Provisions are made for obsolescence, mark down and shrinkage based on actual
losses, ageing of inventories and sales trends.
Rebates receivable from suppliers
Rebates earned by the Group take the form of volume based rebates, for attaining specific purchase targets, with individual suppliers.
These agreements normally cover the financial period. Agreements that cover more than one financial period are recognised in the
period in which the rebate is earned and are credited to the carrying value of inventory to which they relate.
The Group also receives discounts/rebates from certain suppliers for one off, targeted marketing and promotional events. These rebates
are recognised in the period in which the promotional activity is held.
Trade receivables and payables
Trade receivables and payables are initially recognised at fair value and subsequently adjusted to the amount receivable or payable.
Receivables are stated net of a provision for impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, cash at bank, deposits repayable on demand and highly liquid investments. For
the purposes of the cash flow statement, cash and cash equivalents also includes bank overdrafts, which are shown within borrowings
and overdrafts in current liabilities on the balance sheet.
Bank loans and overdrafts
Bank loans and overdrafts are initially recognised at fair value less directly attributable transaction costs and are subsequently measured
at amortised cost using the effective interest rate model.
Provisions
A provision is recognised where the Group has a legal or constructive obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation. Provisions are calculated on a discounted basis when appropriate.
A provision for vacant properties and onerous leases is recognised when the expected benefits to be derived by the Group from a contract
are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is
established, the Group recognises any impairment losses on the assets associated with that contract.
Retirement benefit obligation
The Group operates defined benefit and defined contribution schemes and also participates in a multi-employer pension scheme in
respect of its employees in the Netherlands. The assets and liabilities of all schemes are held separately from those of the Group.
The Group is unable to identify its share of the assets and liabilities of the multi-employer scheme and, therefore, accounts for this
scheme as a defined contribution scheme.
The cost of providing benefits under the defined benefit schemes is determined using the projected unit credit method, with actuarial
valuations being carried out at each balance sheet date. The net retirement benefit obligation recognised in the balance sheet represents
the present value of the defined benefit obligation less the fair value of the scheme assets at the balance sheet date.
Actuarial gains and losses are recognised in full, directly in equity in the period in which they occur and are presented in other
comprehensive income. Other income and expenses associated with the defined benefit scheme are recognised in the income
statement. The pension cost of defined contribution schemes is charged in the income statement as incurred.
74 | Annual report and accounts 2017
74 | Annual Report and Accounts 2017
1. Principal accounting policies continued
Critical estimates and judgments
The preparation of consolidated financial statements under IFRS requires the Group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial period are discussed below:
Impairment of goodwill
The Group is required to test whether goodwill has suffered any impairment. The recoverable amounts of cash-generating units have
been determined based on value in use calculations. The use of this method requires the estimation of future cash flows expected to
arise from the continuing operation of the cash-generating unit and the choice of a suitable discount rate in order to calculate the present
value. Actual outcomes could vary significantly from these estimates.
Impairment of assets
Property, plant and equipment is reviewed for impairment if events or changes in circumstances indicate that the carrying amount may
not be recoverable. When a review for impairment is conducted, the recoverable amount of an asset or cash-generating unit is determined
based on the higher of fair value, less costs to sell, and value in use calculations prepared on the basis of management’s assumptions
and estimates. The use of this method requires the estimation of future cash flows expected to arise from the continuing operation of the
cash-generating unit and the choice of a suitable discount rate in order to calculate the present value. Actual outcomes could vary
significantly from these estimates.
Onerous leases
The Group carries an onerous lease provision which recognises the liabilities associated with lease contracts of closed stores and
those that are projected to close. The provision is based on a review of the lease contracts and management’s estimate of the timings
to exit the lease. The Group has also reviewed any trading loss-making stores and provided for those leases considered to be onerous.
These estimates are based upon available information and knowledge of the property market. The ultimate costs to be incurred in this
regard may vary from the estimates.
Retirement benefits
The present value of the defined benefit liabilities recognised in the balance sheet is dependent on the interest rates of high quality
corporate bonds. The net financing charge is dependent on both the interest rates of high quality corporate bonds and the assumed
investment returns on scheme assets. Other key assumptions for pension obligations, including mortality rates, are based in part on
current market conditions.
Income tax
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised. The Group is subject to income taxes in a number of jurisdictions. Judgment is required in
determining the provision for income taxes. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.
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Financial statementsStrategic reportShareholder informationDirectors’ report
Financial statements continued
Notes to the financial statements continued
2. Segmental analysis
The Group’s operating segments are determined on the basis of information provided to the Chief Operating Decision Maker – the Board of
Directors – to review performance and make decisions. The reporting segments are:
− UK; and
− Rest of Europe (comprising Belgium, the Netherlands and Republic of Ireland).
The reportable operating segments derive their revenue primarily from the retailing of floorcoverings and beds. Central costs of the
Group are incurred principally in the UK. As such, these costs are included within the UK segment. Sales between segments are
carried out at arm’s length.
The segment information provided to the Board of Directors for the reportable segments for the 52 weeks ended 29 April 2017 is
as follows:
Gross revenue
Inter-segment revenue
Gross Sales
Less cost of interest free credit
Less VAT and other sales tax
Revenues from external customers
Gross profit
Underlying operating profit
Separately reported items
Operating profit/(loss)
Intercompany interest
Finance costs
Profit/(loss) before tax
Tax
Profit/(loss) for the financial period
Segment assets:
Segment assets
Inter-segment balances
Balance sheet total assets
Segment liabilities:
Segment liabilities
Inter-segment balances
Balance sheet total liabilities
Other segmental items:
Depreciation and amortisation
Additions to non-current assets
52 weeks to 29 April 2017
UK
£m
468.0
(2.9)
465.1
(6.8)
(77.3)
381.0
225.6
10.7
(11.9)
(1.2)
–
(2.0)
(3.2)
0.5
(2.7)
204.3
(28.7)
175.6
(174.4)
19.9
(154.5)
Europe
£m
91.8
–
91.8
–
(15.2)
76.6
43.8
5.7
(1.6)
4.1
–
–
4.1
(0.7)
3.4
100.6
(19.9)
80.7
(52.5)
28.7
(23.8)
Group
£m
559.8
(2.9)
556.9
(6.8)
(92.5)
457.6
269.4
16.4
(13.5)
2.9
–
(2.0)
0.9
(0.2)
0.7
304.9
(48.6)
256.3
(226.9)
48.6
(178.3)
52 weeks to 30 April 2016
*Reclassified
Europe
£m
78.8
–
78.8
–
(13.0)
65.8
36.9
2.5
(0.4)
2.1
(0.1)
0.1
2.1
(0.8)
1.3
UK
£m
480.2
(5.0)
475.2
(5.1)
(79.1)
391.0
237.3
17.8
(5.1)
12.7
0.1
(2.1)
10.7
(1.9)
8.8
Group
£m
559.0
(5.0)
554.0
(5.1)
(92.1)
456.8
274.2
20.3
(5.5)
14.8
–
(2.0)
12.8
(2.7)
10.1
196.4
(26.6)
169.8
(163.1)
17.9
(145.2)
87.0
(17.9)
69.1
(46.3)
26.6
(19.7)
283.4
(44.5)
238.9
(209.4)
44.5
(164.9)
10.2
15.0
2.0
4.9
12.2
19.9
10.6
10.2
1.9
1.9
12.5
12.1
* Certain prior year amounts, previously reported in underlying performance, have been reclassified for consistency with the current periods presentation as separately
reported items. This has no impact on the Group statutory reported profit before tax and earnings per share (see note 5).
Carpetright plc is domiciled in the UK. The Group’s revenue from external customers in the UK is £381.0m (2016: £391.0m) and the total
revenue from external customers from other countries is £76.6m (2016: £65.8m). The total of non-current assets (other than financial
instruments and deferred tax assets) located in the UK is £143.6m (2016: £141.7m) and the total of those located in other countries is
£80.2m (2016: £69.9m).
Carpetright’s trade has historically shown no distinct pattern of seasonality, with trade cycles more closely following macro-economic indicators.
76 | Annual report and accounts 2017
76 | Annual Report and Accounts 2017
3. Operating profit/(loss), analysis of costs by nature
Operating profit/(loss) is stated after charging/(crediting):
Rental income earned on investment property
Cost of inventories recognised as an expense in cost of sales
Operating lease rentals:
Lease payments in respect of land and buildings
Lease payments in respect of plant and machinery
Other lease items (lease incentives and rent free credits)
Sublease rental income
Auditors’ remuneration:
Audit of the Parent Company’s consolidated financial statements
Audit of the subsidiary companies’ financial statements
Audit-related assurance services
Non audit fees
Staff costs
(Reversal)/impairment of assets
Amortisation of intangible assets
Depreciation of property, plant and equipment:
Owned assets
Under finance leases
Depreciation of investment property
Group
2017
£m
(1.9)
155.7
79.3
2.4
(2.9)
(1.1)
0.2
0.1
–
–
99.7
(1.8)
2.0
9.7
0.2
0.3
Group
2016
£m
(2.0)
145.2
80.7
1.4
(3.3)
(1.0)
0.2
0.1
–
0.1
101.1
0.3
1.9
10.2
0.1
0.3
Notes
4
5
10
11
11
12
Non audit fees in the period were £1k (2016: £54k); these fees are explained on page 38 of the Audit Committee report.
4. Staff costs
The average number of persons (full-time equivalents) employed by the Group (including Directors) was as follows:
Stores
Store support office and distribution centre
The aggregate employment costs of employees and Directors were as follows:
Wages and salaries (including short-term employee benefits)
Social security costs
Post-employment benefits – defined contribution
Share based payments
Group
2017
Number
2,530
417
2,947
Group
2016
Number
2,609
401
3,010
Company
2017
Number
2,107
356
2,463
Company
2016
Number
2,184
350
2,534
Notes
5, 25
Group
2017
£m
87.2
9.3
2.2
1.0
99.7
Group
2016
£m
88.6
9.4
2.1
1.0
101.1
Company
2017
£m
72.4
6.7
1.1
1.0
81.2
Company
2016
£m
74.9
7.1
1.2
1.0
84.2
Wages and salaries include short-term employee benefits as defined in IAS 19, with the exception of costs associated with the Group’s
pension schemes. Post-employment benefits include costs associated with the Group’s pension schemes (with the exception of net
interest costs and the actuarial gain on the defined benefit pension schemes) and are included in administration expenses. Share based
payments comprise the cost of awards in respect of employee share schemes in accordance with IFRS 2. These costs are explained
in note 25.
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Financial statementsStrategic reportShareholder informationDirectors’ report
Financial statements continued
Notes to the financial statements continued
4. Staff costs continued
The Group considers key management to be the Executive Directors only. The employment costs of key management were as follows:
Wages and salaries (including short-term employee benefits)
Social security costs
Post-employment benefits – defined contribution
Share based payments
Group
2017
£m
0.8
0.2
0.2
0.1
1.3
Group
2016
£m
1.2
0.2
0.2
0.4
2.0
During the period, the Executive Directors did not realise any gains (2016: no gains) on the vesting of long-term incentive plans. Details of
these plans, share options and other Directors’ remuneration are disclosed in the Directors’ remuneration report on pages 39 to 60.
5. Separately reported items
In order to provide shareholders with additional insight into the underlying performance of the business, items recognised in reported profit
or loss before tax which, by virtue of their size and, or nature, do not reflect the Group’s underlying performance, have been excluded from
the Group’s underlying results.
Underlying profit before tax
Property related
Loss on disposal of properties
Freehold property reversal/(impairment)
Store asset (impairment)/reversal
Net onerous lease charge
Strategy
Store refurbishment – asset write-offs
Other
Share based payments
Total
Statutory profit before tax
Notes
Group
2017
£m
14.4
Group
2016
£m
Reclassified*
18.3
(1.9)
2.2
(0.4)
(11.0)
(3.6)
(0.4)
0.1
(0.6)
20
(1.4)
–
25
(1.0)
(1.0)
(13.5)
(5.5)
0.9
12.8
*
In 2016 the charge reported in the annual report and accounts was £4.5m. For consistency with the current period presentation we have reclassified £1.0m relating to
share based payments. This has no impact on the Group’s statutory reported profit before tax and earnings per share. The reclassified separately reported items for
2016 is therefore £5.5m.
A net loss of £1.9m was made on the disposal of 25 (22 trading and three onerous) properties during the year (2016: £3.6m loss),
principally a combination of surrender premiums being paid to exit loss-making stores and asset write-offs.
A number of investment properties that have previously been impaired are in receipt of rental income from independent third party tenants.
As a result £2.2m of impairment against these locations is no longer required and has been reversed (2016: £0.4m charge).
Leasehold store impairment testing during the year has identified a number of stores where the anticipated future performance does not
support the carrying value of the assets. As a result, a charge of £0.4m has been incurred in respect of the impairment of assets
associated with these stores (2016: £0.1m credit).
At 30 April 2016 there were eleven vacant properties in the UK and two in the Republic of Ireland classed as onerous leases against which
we carried a provision. During the year we disposed of three of these locations. This was offset with three trading stores being closed and
added to this group. Following a strategic review of the store portfolio in February 2017, we have made a revised assessment of the
onerous lease costs for loss-making stores. The net impact of these judgments is a net charge of £11.0m (2016: £0.6m) – (see note 20).
The value of assets written off incurred during the strategic store refurbishment programme amounts to £1.4m during the year. In light of
the quantum, and in keeping with historical treatment, such write-offs have been reported as separately reported items.
78 | Annual report and accounts 2017
78 | Annual Report and Accounts 2017
5. Separately reported items continued
In light of the variable and non-cash nature of employee share based payments, these have been classified as separately reported items.
This also allows for greater visibility of these charges in the accounts. A charge of £1.0m was incurred during the year (2016: £1.0m).
The cash flow impact of separately reported items was £4.0m outflow in the year.
The tax impact of separately reported items is a credit of £2.5m. The Group also recognised a £0.6m tax credit for the fall in the UK main
rate of tax to 17%, which has also been included in separately reported items.
6. Finance costs
Interest on borrowings and overdrafts
Fees amortisation
Interest on obligations under finance leases
Net interest on pension scheme obligations
Finance costs
7. Tax
(i) Analysis of the charge in the period
UK current tax
Adjustment in respect of prior years
Overseas current tax
Total current tax
UK deferred tax
UK deferred tax prior year adjustment
Overseas deferred tax
Overseas deferred tax prior year adjustment
Total deferred tax
Total tax charge in the income statement
(ii) Reconciliation of profit before tax to total tax
Profit before tax
Tax charge at UK corporation tax rate of 20% (2016: 20%)
Adjusted for the effects of:
Overseas tax rates
Deferred tax impact of fall in UK tax rates
Non-qualifying depreciation
Other permanent differences
Prior year adjustments
Impact of gains crystallising
Total tax charge in the income statement
Notes
22
Notes
21
Group
2017
£m
(1.2)
(0.5)
(0.2)
(0.1)
(2.0)
Group
2017
£m
(0.2)
–
0.1
(0.1)
(1.0)
(0.2)
2.2
(0.7)
0.3
0.2
Group
2017
£m
0.9
0.2
0.5
(0.6)
0.4
0.6
(0.9)
–
0.2
Group
2016
£m
(1.1)
(0.6)
(0.2)
(0.1)
(2.0)
Group
2016
£m
3.6
(0.6)
–
3.0
(1.1)
–
0.8
–
(0.3)
2.7
Group
2016
£m
12.8
2.6
0.3
(1.3)
0.4
0.9
–
(0.2)
2.7
The weighted average annual effective tax rate for the period is a charge of 24.3% (2016: 21.3%).
The March 2016 Budget announced a fall in UK corporation tax rate to 17% from 1 April 2020 and was substantively enacted in
September 2016 and the effects of which are included in these financial statements. The reduction resulted in a deferred tax credit of
£0.6m in the year.
(iii) Tax on items taken directly to or transferred from equity
Deferred tax on actuarial losses recognised in other comprehensive income
Deferred tax on share based payments
Total tax recognised in equity
Group
2017
£m
(0.1)
–
(0.1)
Group
2016
£m
(0.4)
–
(0.4)
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Financial statementsStrategic reportShareholder informationDirectors’ report
Financial statements continued
Notes to the financial statements continued
8. Dividends
The Directors decided that no final dividend will be paid (2016: No final dividend paid). This results in no dividend in the period to
29 April 2017 (2016: No dividend paid).
9. Earnings per share
Basic earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number
of ordinary shares in issue during the period, excluding those held by Equity Trust (Jersey) Limited (see note 25) which are treated
as cancelled.
In order to compute diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion
of all potentially dilutive ordinary shares. Those share options granted to employees and Executive Directors where the exercise price is less
than the average market price of the Company’s ordinary shares during the period represent potentially dilutive ordinary shares.
Basic earnings per share
Effect of dilutive share options
Diluted earnings per share
52 weeks to 29 April 2017
Weighted
average
number of
shares
Millions
67.6
1.6
69.2
Earnings
£m
0.7
0.1
0.8
Earnings
per share
Pence
1.0
0.1
1.1
52 weeks to 30 April 2016
Weighted
average
number of
shares
Millions
67.7
0.2
67.9
Earnings
£m
10.1
–
10.1
Earnings
per share
Pence
14.9
–
14.9
The Directors have presented an additional measure of earnings per share based on underlying earnings. This is in accordance with
the practice adopted by many major retailers. Underlying earnings is defined as profit excluding separately reported items and related tax.
Reconciliation of earnings per share excluding post tax profit on separately reported items
Basic earnings per share
Adjusted for the effect of separately reported items:
Separately reported items
Tax thereon
Separately reported tax benefit from tax rate change
Underlying earnings per share
52 weeks to 29 April 2017
Weighted
average
number of
shares
Millions
67.6
Earnings
£m
0.7
Earnings
per share
Pence
1.0
13.5
(2.5)
(0.6)
11.1
–
–
–
67.6
20.0
(3.7)
(0.9)
16.4
52 weeks to 30 April 2016
Weighted
average
number of
shares
Millions
67.7
–
–
–
67.7
Earnings
£m
10.1
5.5
(0.2)
(1.3)
14.1
Earnings
per share
Pence
14.9
8.1
(0.3)
(1.9)
20.8
The prior year underlying earnings per share has been amended to take account of the reclassification of £1.0m shared based payment
charge as a separately reported item (note 5). Basic earnings per share is unchanged.
80 | Annual report and accounts 2017
80 | Annual Report and Accounts 2017
10. Intangible assets
Group
Cost:
At 2 May 2015
Exchange differences
Additions
Disposals
At 30 April 2016
Exchange differences
Additions
Disposals
At 29 April 2017
Accumulated amortisation and impairment:
At 2 May 2015
Exchange differences
Amortisation
Disposals
At 30 April 2016
Exchange differences
Amortisation
Disposals
At 29 April 2017
Net book value:
At 29 April 2017
At 30 April 2016
Goodwill
£m
Computer
software
£m
Brands
£m
51.3
1.1
–
–
52.4
1.7
–
–
54.1
0.5
–
–
–
0.5
–
–
–
0.5
20.8
0.1
1.8
(0.2)
22.5
–
0.6
(0.9)
22.2
15.5
0.1
1.9
(0.2)
17.3
0.1
2.0
(0.9)
18.5
53.6
51.9
3.7
5.2
0.1
–
–
–
0.1
–
–
–
0.1
0.1
–
–
–
0.1
–
–
–
0.1
–
–
Total
£m
72.2
1.2
1.8
(0.2)
75.0
1.7
0.6
(0.9)
76.4
16.1
0.1
1.9
(0.2)
17.9
0.1
2.0
(0.9)
19.1
57.3
57.1
Goodwill is not amortised. Instead it is subject to an impairment review at each reporting date or more frequently if there is an indication
that it may be impaired. Other intangibles are amortised and also tested for impairment when there is an indication that the asset may be
impaired. Impairments and amortisation charges are recognised in full in administration expenses in the income statement during the
period in which they are identified.
Goodwill is impaired if the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of fair value less
costs to sell and the value in use. In the absence of a recent market transaction, the recoverable amount of the goodwill held by
the Group is determined from value in use calculations.
Management has identified two cash-generating units (CGUs) supporting goodwill which are the UK and Europe, being the
Netherlands and Belgium. The goodwill allocated to each CGU is £29.8m (2016: £29.8m) to UK and £23.8m (2016: £22.1m) to Europe.
Value in use calculations are based on five year profit projection models and plans approved by the Board, adjusted for non-cash items
and capital expenditure.
The key assumptions used in the cash flow model when assessing the UK and European goodwill balances are:
− Modest like-for-like sales growth in the UK and Europe, stable gross margin percentage and anticipated cost inflation;
− the pre-tax discount rate of 7.8% (2016: 7.8%) as applied to the cash flows is based on the Group’s weighted average cost of capital
adjusted to reflect the risks of the businesses acquired; and
− the long-term growth rate of 2% is used in the calculation of the perpetuity model which is based on the long-term forecast growth rates
of the countries within which the Group operates.
In the UK, the recoverable amount calculated based on value in use exceeded carrying value by £516.8m.
In Europe, the recoverable amount calculated based on value in use exceeded carrying value by £97.7m. A fall in long-term growth rate
to -26.2% from 2.0% or a rise in the discount rate to 18.6% from 7.8% would remove the remaining headroom.
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Financial statementsStrategic reportShareholder informationDirectors’ report
Financial statements continued
Notes to the financial statements continued
10. Intangible assets continued
Company
Cost:
At 2 May 2015
Additions
Disposals
At 30 April 2016
Additions
Disposals
At 29 April 2017
Accumulated amortisation and impairment:
At 2 May 2015
Amortisation
Disposals
At 30 April 2016
Amortisation
Disposals
At 29 April 2017
Net book value:
At 29 April 2017
At 30 April 2016
Goodwill
£m
Computer
software
£m
Brands
£m
24.1
–
–
24.1
–
–
24.1
–
–
–
–
–
–
–
20.8
1.8
(0.2)
22.4
0.6
(0.9)
22.1
15.5
1.9
(0.1)
17.3
2.0
(0.9)
18.4
24.1
24.1
3.7
5.1
0.1
–
–
0.1
–
–
0.1
0.1
–
–
0.1
–
–
0.1
–
–
Total
£m
45.0
1.8
(0.2)
46.6
0.6
(0.9)
46.3
15.6
1.9
(0.1)
17.4
2.0
(0.9)
18.5
27.8
29.2
Company goodwill comprises purchased goodwill arising on the transfer of businesses from subsidiaries to the parent company in respect
of Mays Carpets Ltd, £4.7m; Storey Carpets Ltd, £15.7m; Carpetworld (Manchester) Ltd, £0.8m; and Sleepright UK Ltd, £2.9m.
82 | Annual report and accounts 2017
82 | Annual Report and Accounts 2017
11. Property, plant and equipment
Group
Cost:
At 2 May 2015
Exchange differences
Additions
Transfer between asset classes
Disposals
At 30 April 2016
Exchange differences
Additions
Transfer between asset classes
Transfer to investment property
Disposals
At 29 April 2017
Accumulated depreciation and impairment:
At 2 May 2015
Exchange differences
Impairment/(reversal)
Depreciation
Transfer between asset classes
Transfer to investment property
Disposals
At 30 April 2016
Exchange differences
Impairment/(reversal)
Depreciation
Transfer between asset classes
Transfer to investment property
Disposals
At 29 April 2017
Net book value:
At 29 April 2017
At 30 April 2016
Freehold
land and
buildings
£m
Long
leasehold
land and
buildings
£m
Short
leasehold
buildings
£m
Fixtures
and fittings
£m
Plant and
machinery
£m
44.0
1.2
0.1
–
(1.5)
43.8
1.5
–
–
(1.7)
(1.6)
42.0
8.9
0.4
0.3
0.7
–
(1.8)
(0.2)
8.3
0.6
(0.8)
0.7
–
(0.1)
(0.9)
7.8
17.6
–
–
–
–
17.6
0.1
–
(1.0)
–
(0.3)
16.4
5.7
–
–
0.4
–
–
–
6.1
0.1
–
0.3
(0.7)
–
(0.2)
5.6
18.2
0.1
0.2
–
(1.9)
16.6
0.1
0.7
0.9
–
(1.2)
17.1
11.8
0.1
–
0.8
–
–
(1.6)
11.1
0.1
–
0.8
0.6
–
(1.1)
11.5
93.4
0.6
5.5
2.2
(8.2)
93.5
1.1
17.1
0.1
–
(14.7)
97.1
57.3
0.4
(0.1)
6.9
2.1
–
(7.4)
59.2
1.1
0.4
7.3
0.1
–
(13.1)
55.0
37.7
1.6
4.5
(2.2)
(7.7)
33.9
2.0
1.5
–
–
(1.1)
36.3
32.6
1.3
–
1.5
(2.1)
–
(7.6)
25.7
1.6
–
0.8
–
–
(1.1)
27.0
Total
£m
210.9
3.5
10.3
–
(19.3)
205.4
4.8
19.3
–
(1.7)
(18.9)
208.9
116.3
2.2
0.2
10.3
–
(1.8)
(16.8)
110.4
3.5
(0.4)
9.9
–
(0.1)
(16.4)
106.9
34.2
35.5
10.8
11.5
5.6
5.5
42.1
34.3
9.3
8.2
102.0
95.0
In accordance with IAS 36, assets are reviewed for impairment whenever changes in circumstances indicate that the carrying value
may not be recoverable.
Assets held under finance leases have the following net book value:
Cost
Accumulated depreciation and impairment
Net book value
The assets held under finance leases comprise buildings.
Group
2017
£m
8.8
(3.3)
5.5
Group
2016
£m
9.1
(3.2)
5.9
Company
2017
£m
2.1
(1.6)
0.5
Company
2016
£m
2.3
(1.7)
0.6
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Freehold
land and
buildings
£m
Long
leasehold
land and
buildings
£m
Short
leasehold
buildings
£m
Fixtures
and fittings
£m
Plant and
machinery
£m
18.2
0.1
0.2
(1.9)
16.6
0.1
0.8
(1.2)
16.3
11.8
0.1
–
0.8
–
(1.6)
11.1
0.1
0.1
0.8
–
(1.1)
11.0
83.4
–
5.3
(7.5)
81.2
0.1
12.8
(12.5)
81.6
47.6
0.2
(0.1)
6.7
–
(6.7)
47.7
–
0.5
6.3
–
(10.9)
43.6
13.0
–
2.8
(7.1)
8.7
–
0.9
(0.9)
8.7
12.0
–
–
0.4
–
(7.1)
5.3
–
–
0.6
–
(0.9)
5.0
Total
£m
142.3
0.1
8.3
(16.5)
134.2
0.2
14.5
(14.9)
134.0
78.9
0.3
0.5
8.3
(1.8)
(15.4)
70.8
0.1
–
8.0
0.6
(13.1)
66.4
5.3
5.5
38.0
33.5
3.7
3.4
67.6
63.4
17.8
–
–
–
17.8
–
–
–
17.8
3.9
–
0.6
0.2
(1.8)
–
2.9
–
(0.6)
0.2
0.6
–
3.1
14.7
14.9
9.9
–
–
–
9.9
–
–
(0.3)
9.6
3.6
–
–
0.2
–
–
3.8
–
–
0.1
–
(0.2)
3.7
5.9
6.1
Financial statements continued
Notes to the financial statements continued
11. Property, plant and equipment continued
Company
Cost:
At 2 May 2015
Exchange differences
Additions
Disposals
At 30 April 2016
Exchange differences
Additions
Disposals
At 29 April 2017
Accumulated depreciation and impairment:
At 2 May 2015
Exchange differences
Impairment
Depreciation
Transfer to investment property
Disposals
At 30 April 2016
Exchange differences
Impairment
Depreciation
Transfer from investment property
Disposals
At 29 April 2017
Net book value:
At 29 April 2017
At 30 April 2016
84 | Annual report and accounts 2017
84 | Annual Report and Accounts 2017
12. Investment property
Investment property is carried at depreciated historical cost and is reviewed for impairment when there is an indication of impairment.
The recoverable amount is the higher of fair value less costs to sell and the value in use calculations. The value in use calculations are
based on five year profit projection models and plans approved by the Board.
Operating expenses attributable to investment properties are incurred directly by tenants under tenant-repairing leases.
Properties now sublet have been reclassified as investments.
Cost:
At 2 May 2015
Exchange differences
Disposals
At 30 April 2016
Exchange differences
Transfer from property, plant and equipment
Disposals
At 29 April 2017
Accumulated depreciation and impairment:
At 2 May 2015
Exchange differences
Impairment
Depreciation
Transfer from property, plant and equipment
Disposals
At 30 April 2016
Exchange differences
Impairment
Depreciation
Transfer from/(to) property, plant and equipment
Disposals
At 29 April 2017
Net book value:
At 29 April 2017
At 30 April 2016
Group
£m
Company
£m
22.8
0.7
(2.3)
21.2
1.2
1.7
(3.9)
20.2
4.9
0.2
0.1
0.3
1.8
(0.6)
6.7
0.2
(1.4)
0.3
0.1
(1.0)
4.9
15.3
14.5
9.1
–
(2.3)
6.8
–
–
(3.9)
2.9
0.6
–
–
0.1
1.8
(0.6)
1.9
–
0.3
–
(0.6)
(1.0)
0.6
2.3
4.9
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Financial statements continued
Notes to the financial statements continued
13. Investment in subsidiary undertakings
All of the Group’s subsidiary undertakings are included in the consolidated accounts. The Group has the following subsidiaries as at
29 April 2017.
Carpetright of London Limited
Melford Commercial Properties Limited
Carpetright (Torquay) Limited
Pluto Sp. Z.o.o.
Carpetland NV
Carpetland BV
Fontainebleau Vastgoed BV
Carpetworld Manchester Limited
Carpet Express Limited
Carpet Depot Ltd
Carpetright Purfleet Limited
Carpetright Purfleet Holdings Limited
Carpetworld Ltd
Carpetright at Home Limited
Carpetright Card Services Limited
Harris Beds Limited
Harris Carpet Limited
Harris Carpets at Home Limited
Harris Carpets Direct Limited
Harris Carpets Direct.com Limited
Harris Furnishing Limited
In-House Carpets Limited
Mays Holdings Limited
Mays Carpets Limited
New Carpet Express Limited
Premier Carpets Limited
Rugright (EU) Limited
Storey Carpets Limited
Sleepright (UK) Limited
Sleepright (EU) Limited
Woodright Limited
Registered office and country of incoporation
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Principal
activity
Holding
Property
Property
Ul. Spacerowa 188, 270 Marki, Poland Property
Retail
Retail
Property
Property
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Nieuwe Stallesstraat 215, 1620 Drogenbos, Belgium
Franciscusdreef 62, 3565 AC Utrecht, Netherlands
Franciscusdreef 62, 3565 AC Utrecht, Netherlands
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
Purfleet Bypass, Purfleet, Essex, England and Wales
The Group operates in the Republic of Ireland where it trades as a branch of Carpetright plc.
Company
Cost:
At the beginning of the period
At the end of the period
Percentage
of ordinary
shares held
directly by
Company
100%
100%
100%
100%
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Percentage
of ordinary
shares held
indirectly by
Company
–
–
–
–
100%
100%
100%
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2017
£m
15.7
15.7
2016
£m
15.7
15.7
The cost of investments before impairments is £16.7m. As at 29 April 2017 accumulated impairments of £1.0m have been recognised
against the investment in Pluto Sp Z.o.o.
86 | Annual report and accounts 2017
86 | Annual Report and Accounts 2017
14. Inventories
Group and Company inventories are held in the form of finished goods for resale. In the period, write down of stock to net realisable
value was £0.2m (2016: £0.4m), resulting in a stock provision of £0.4m (2016: £0.2m).
15. Trade and other receivables
Non-current:
Receivables from subsidiaries
Prepayments
Current:
Trade receivables
Less: provision for impairment
Other receivables
Prepayments and accrued income
Total trade and other receivables
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
–
0.4
0.4
13.4
(0.7)
12.7
1.3
11.8
25.8
26.2
–
0.5
0.5
8.6
(0.4)
8.2
1.2
10.6
20.0
20.5
41.7
0.4
42.1
6.4
(0.7)
5.7
0.7
10.6
17.0
59.1
42.9
0.5
43.4
4.2
(0.4)
3.8
0.7
9.7
14.2
57.6
The Directors consider that the carrying amounts of trade and other receivables approximate to their fair values.
Provision for impairment
At the beginning of the period
Provision for impairment recognised during the year
At the end of the period
Group
2017
£m
(0.4)
(0.3)
(0.7)
Group
2016
£m
(0.4)
–
(0.4)
Company
2017
£m
(0.4)
(0.3)
(0.7)
Company
2016
£m
(0.4)
–
(0.4)
The table below shows the financial assets included in trade and other receivables at the balance sheet date:
Major insurance companies
Property rent receivables
Receivables from retail credit finance
Retail customers
Trade and other receivables
Group
2017
£m
1.0
0.3
1.4
11.3
14.0
Group
2016
£m
0.9
0.3
1.2
7.0
9.4
Company
2017
£m
0.4
0.3
1.4
4.3
6.4
Company
2016
£m
0.4
0.3
1.1
2.7
4.5
Balances from retail customers principally relate to products awaiting collection, but are considered to have little credit risk as they are
primarily settled by cash or major credit card and must be settled prior to the goods being collected from/delivered by the store. The Group
bears no credit risk in respect of amounts due from retail customers under retail finance arrangements.
The age profile of balances other than those with retail customers is set out below:
Neither past due nor impaired
30 to 60 days
60 to 90 days
Over 90 days
Non-retail trade and other receivables
Group
2017
£m
1.2
0.1
–
–
1.3
Group
2016
£m
1.1
0.1
–
–
1.2
Company
2017
£m
0.6
0.1
–
–
0.7
Company
2016
£m
0.6
0.1
–
–
0.7
Other classes within trade and other receivables do not contain impaired assets and are not past due.
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Financial statements continued
Notes to the financial statements continued
16. Cash and cash equivalents
Cash at bank and in hand
Bank overdrafts
Cash and cash equivalents in the cash flow statements
Notes
19
Group
2017
£m
12.5
(7.1)
5.4
Group
2016
£m
8.3
(7.1)
1.2
Company
2017
£m
9.3
(7.1)
2.2
Company
2016
£m
5.5
(7.1)
(1.6)
Included in the £12.5m cash at bank are £5.2m of cash balances generated from the sale of freehold properties previously provided as
security against borrowings. These funds are restricted in use for either the acquisition of new freehold properties which will in turn be
offered as security against borrowings or for the reduction of banking facilities.
17. Trade and other payables
Current:
Trade payables
Other taxes and social security
Accruals and deferred income
Non-current:
Accruals and deferred income
Payable to subsidiaries
Total trade and other payables
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
51.0
10.2
22.7
83.9
34.5
–
34.5
118.4
52.8
11.5
24.5
88.8
34.3
–
34.3
123.1
45.4
9.0
18.1
72.5
34.6
9.6
44.2
116.7
46.0
9.5
22.1
77.6
34.3
9.1
43.4
121.0
Trade payables comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amounts
of trade and other payables approximate to their fair values.
18. Obligations under finance leases
Amounts payable within one year
Amounts payable between one and
five years
Amounts payable after five years
Less: future finance charges
Present value of obligations
under finance leases
Current
Non-current
Minimum lease payments
Company
2017
£m
0.2
Group
2016
£m
0.3
Group
2017
£m
0.3
Company
2016
£m
0.2
1.1
3.7
5.1
(2.9)
2.2
0.1
2.1
1.1
4.0
5.4
(3.1)
2.3
0.1
2.2
0.8
0.5
1.5
(0.4)
1.1
0.1
1.0
0.8
0.7
1.7
(0.5)
1.2
0.1
1.1
Present value of minimum lease payments
Group
2017
£m
0.1
Company
2017
£m
0.1
Group
2016
£m
0.1
Company
2016
£m
0.1
0.6
1.5
–
–
2.2
0.6
1.6
–
–
2.3
0.5
0.5
–
–
1.1
0.5
0.6
–
–
1.2
The Group leases certain properties under finance leases. The average lease term remaining is 12 years (2016: 13 years). The minimum
lease payments are discounted at the rate inherent in the leases. Interest rates are fixed at the contract date. All leases are on a fixed
repayment basis and no arrangements have been entered into for contingent rental payments.
88 | Annual report and accounts 2017
88 | Annual Report and Accounts 2017
19. Borrowings
Current:
Bank overdraft
Bank loans
Non-current:
Bank loans
Group
2017
£m
Group
2016
£m
Company
2017
£m
Company
2016
£m
7.1
13.0
20.1
–
20.1
7.1
–
7.1
–
7.1
7.1
13.0
20.1
–
20.1
7.1
–
7.1
–
7.1
Borrowings and overdrafts are denominated in Sterling and Euro of which £7.1m (2016: £7.1m) are secured on certain Group
freehold properties.
The effective interest rates at the period end are as follows:
Overdrafts
Revolving credit facility
The maturity profiles of borrowings are as follows:
Amounts payable within one year
Group
2017
%
4.0
3.5
Group
2017
£m
20.1
20.1
Group
2016
%
4.0
3.5
Company
2017
%
4.0
3.5
Company
2016
%
4.0
3.5
Group
2016
£m
7.1
7.1
Company
2017
£m
20.1
20.1
Company
2017
£m
7.1
7.1
The maturity analysis is grouped by when the debt is contracted to mature rather than by re-pricing dates.
20. Provisions for liabilities and charges
Group and Company
At the beginning of the period
Exchange differences
Added during the period
Released during the period
Utilised during the period
At the end of the period
Group
2017
£m
Reorganisation
provisions
£m
0.1
–
–
–
(0.1)
–
Onerous lease
provisions
£m
12.5
0.1
12.4
(1.4)
(6.1)
17.5
Total
provisions
£m
12.6
0.1
12.4
(1.4)
(6.2)
17.5
Onerous lease
provisions
£m
12.3
0.1
12.4
(1.3)
(6.0)
17.5
Company
2017
£m
Reorganisation
provisions
£m
–
–
–
–
–
–
Total
provisions
£m
12.3
0.1
12.4
(1.3)
(6.0)
17.5
The onerous lease provisions relate to estimated future unavoidable lease costs in respect of closed and loss-making trading stores.
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Financial statementsStrategic reportShareholder informationDirectors’ report
Financial statements continued
Notes to the financial statements continued
21. Deferred tax assets and liabilities
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
Group
2017
£m
(1.9)
15.2
13.3
Group
2016
£m
(1.9)
15.3
13.4
Company
2017
£m
–
9.0
9.0
Company
2016
£m
–
10.6
10.6
Deferred tax assets and liabilities are offset against each other where there is a legally enforceable right to offset. Deferred tax liabilities
of £15.2m (2016: £15.3m) comprise deferred tax assets of £1.8m (2016: £2.1m) offset against deferred tax liabilities of £17.0m
(2016: £17.4m).
The movement in deferred tax assets and liabilities recognised by the Group during the current and prior period is:
Group
At 2 May 2015
Exchange difference
Charge/(credit) to the income statement
Charge/(credit) to other comprehensive income
At 30 April 2016
Exchange difference
Charge/(credit) to the income statement
Charge/(credit) to other comprehensive income
Transfer to current tax
At 29 April 2017
Company
At 2 May 2015
Charge/(credit) to the income statement
Charge/(credit) to other comprehensive income
At 30 April 2016
Charge/(credit) to the income statement
Charge/(credit) to other comprehensive income
Transfer to current tax
At 29 April 2017
Accelerated
tax
depreciation
5.2
0.1
(0.4)
–
4.9
0.2
(0.1)
–
–
5.0
Accelerated
tax
depreciation
2.3
(0.4)
–
1.9
(0.2)
–
–
1.7
Fair value
adjustments
1.3
(0.1)
–
–
1.2
0.1
–
–
–
1.3
Deferred
capital gains
12.2
–
(1.3)
–
10.9
–
(0.9)
–
(0.3)
9.7
Fair value
adjustments
–
–
–
–
–
–
–
–
Deferred
capital gains
11.2
(1.2)
–
10.0
(0.9)
–
(0.3)
8.8
Short-term
timing
differences
(1.0)
0.2
0.2
–
(0.6)
–
0.3
–
–
(0.3)
Short-term
timing
differences
(1.0)
–
–
(1.0)
0.1
–
–
(0.9)
Share
based
payments
(0.1)
–
–
–
(0.1)
–
(0.2)
–
–
(0.3)
Tax
losses
(4.0)
–
1.3
–
(2.7)
(0.3)
1.2
–
–
(1.8)
Share
based
payments
(0.1)
–
–
(0.1)
(0.2)
–
–
(0.3)
Tax
losses
(0.6)
0.6
–
–
–
–
–
–
Retirement
benefit
obligations
(0.6)
–
–
0.4
(0.2)
–
–
(0.1)
–
(0.3)
Retirement
benefit
obligations
(0.6)
–
0.4
(0.2)
–
(0.1)
–
(0.3)
Total
13.0
0.2
(0.2)
0.4
13.4
–
0.3
(0.1)
(0.3)
13.3
Total
11.2
(1.0)
0.4
10.6
(1.2)
(0.1)
(0.3)
9.0
90 | Annual report and accounts 2017
90 | Annual Report and Accounts 2017
22. Retirement benefit obligations
The Group operates a variety of pension schemes, principally in the UK, the Netherlands and Belgium. They comprise defined benefit
schemes where benefits are based on employees’ length of service and average final salary, and defined contribution schemes where
the employer company pays a set contribution to the scheme. The UK defined benefit schemes referred to in note 22 (i) (a) and the
first two defined contribution schemes referred to in note 22 (ii) are accounted for by the Company.
(i) Defined benefit schemes
(a) UK defined benefit schemes
The Company operated a funded defined benefit pension scheme providing benefits based on final pensionable pay for its employees
and has assumed the liability for the scheme previously operated by Storey Carpets Ltd (Storeys). The Company scheme was closed
to defined benefit service accrual on 30 April 2010 and has been closed to new members since 31 March 2006. The scheme previously
operated by Storeys is also closed to new members and has no active members. The assets of the schemes are held separately from
those of the Company.
The assets of the Company scheme are invested in a Managed Fund operated by a fund management company. Contributions are
determined by a qualified actuary using the projected unit credit method. The most recent actuarial review was at 6 April 2014 when the
actuarial value of the assets represented 89% of the benefits accrued to members after allowing for expected future increases in earnings.
A deficit reduction plan has been agreed with the Trustees under which £0.6m was paid in the period (2016: £0.6m).
The assets of the Storeys scheme are held in independently managed funds. The most recent actuarial review of the Storeys scheme
was at 1 March 2014 when the actuarial value of the assets represented 88% of the benefits accrued to members. A deficit reduction
plan has been agreed with the Trustees under which £0.3m was paid in the period (2016: £0.3m).
Risks
The Group schemes are exposed to actuarial risks and investment risks. Some of the risks can be reduced by adjusting the funding
strategy with the help of the Trustees, for example investment matching risk. Other risks cannot so easily be removed, for example
longevity risk. The Trustees of the plan regularly review such risks and mitigating controls and a risk register is approved annually to
mitigate such risks.
Employer contributions of £0.9m are expected to be paid into these pension schemes during the financial period 2018.
The assets and liabilities of the schemes were valued on an IAS 19 basis at 29 April 2017 by a qualified actuary. The numbers set
out below are the aggregate of the two schemes.
1) The table below outlines amounts included in the financial statements arising from the Group’s and Company’s obligations in respect
of the defined benefit scheme:
Present value of pension schemes’ obligations
Fair value of pension schemes’ assets
Total recognised in the balance sheet
Net interest cost on pension schemes
Total recognised in the income statement
Actuarial gains/(losses) on plan assets
Change in assumptions underlying present value of liabilities
Total recognised in the other comprehensive income statement
Notes
6
2017
£m
(32.7)
29.5
(3.2)
2017
£m
(0.1)
(0.1)
2017
£m
4.9
(6.7)
(1.8)
2016
£m
(28.3)
26.1
(2.2)
2016
£m
(0.1)
(0.1)
2016
£m
(0.6)
1.7
1.1
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Financial statements continued
Notes to the financial statements continued
22. Retirement benefit obligations continued
2) Reconciliation of movement in net pension deficit:
As at 30 April 2016
Interest income/(expense)
Re-measurements:
Actuarial gains and losses from:
Financial assumptions
Experience adjustments
Return on plan assets excluding interest
Contributions:
Employers
Payments from plan:
Benefits paid
As at 29 April 2017
Defined benefit obligations
2016
£m
(30.8)
(1.0)
2017
£m
(28.3)
(1.0)
(6.4)
(0.3)
–
1.7
–
–
Fair value of assets
Net defined
benefit obligations
2017
£m
26.1
0.9
–
–
4.9
2016
£m
26.8
0.9
–
–
(0.7)
2017
£m
(2.2)
(0.1)
(6.4)
(0.3)
4.9
2016
£m
(4.0)
(0.1)
1.7
–
(0.7)
–
–
0.9
0.9
0.9
0.9
3.3
1.8
(3.3)
(1.8)
–
–
(32.7)
(28.3)
29.5
26.1
(3.2)
(2.2)
3) The fair value of scheme assets split between those which have a quoted market price in an active market and those which are unquoted
are as follows:
Equities
Bonds
Property
Insurance policy – unquoted
Cash and cash equivalents
Total
2017
Quoted
£m
12.4
9.0
–
–
0.2
21.6
2017
Unquoted
£m
–
–
–
7.9
–
7.9
Total
2017
£m
12.4
9.0
–
7.9
0.2
29.5
2016
Quoted
£m
11.5
7.6
0.1
–
0.1
19.3
2016
Unquoted
£m
–
–
–
6.7
0.1
6.8
Total
2016
£m
11.5
7.6
0.1
6.7
0.2
26.1
The unquoted insurance policy has been valued at an amount equal to the present value of the pensions secured, determined using the
same actuarial assumptions and methodology as have been used to determine the present value of the obligations under the Scheme.
92 | Annual report and accounts 2017
92 | Annual Report and Accounts 2017
22. Retirement benefit obligations continued
4) Key assumptions used:
RPI inflation
Discount rate
CPI inflation
2017
%
3.5
2.5
2.7
2016
%
3.1
3.5
2.3
The assumptions used by the actuary are the best estimates chosen from a range of possible actuarial assumptions which, due to the
timescale covered, may not necessarily be borne out in practice. The assumptions used for future life expectancy of members of the
scheme are derived from industry dates and standard tables. Specifically, the S2NXA and S2 table on a year of birth usage with CMI_2013
future improvements factors and a long-term rate of improvement of 1.25% (2016: S2NXA table on a year of birth usage with future
improvements factors and a long-term rate of improvement of 1.25% pa). This results in the following life expectancies:
− male aged 65 now has life expectancy of 23 years
− female aged 65 now has life expectancy of 25 years
The weighted average duration of the defined benefit obligation at the end of the reporting period is 20 years and 18 years for the
Carpetright and Storey’s schemes respectively (2016: 20 years and 18 years respectively).
The most significant assumptions are the discount rate, retail and consumer price index and mortality rates, of which the most sensitive
assumption is the life expectancy. The table below shows the impact on the present value placed on the plan’s liabilities of the stated
changes to the actuarial assumptions and has been derived by applying sensitivities determined at the most recent actuarial valuation
to the projected liability value. The sensitivity analysis is based on a change in one assumption while holding all others constant. Therefore
interdependencies between the assumptions have not been taken into account within the analysis
Increase/(decrease) by 0.1%
Increase/(decrease) by 0.1%
Increase/(decrease) by 1 year
Discount rate
RPI inflation or CPI inflation
Life expectancy
2017
£m
0.6
0.4
1.2
2016
£m
0.5
0.3
1.1
(b) Multi-employer scheme
The Group’s Dutch subsidiary participates in a multi-employer run industry pension scheme which has arrangements similar to those
of a defined benefit scheme. It is not possible to identify the Group’s share of the underlying assets and liabilities of the scheme, and
therefore, in accordance with IAS 19, the Group has taken the exemption for multi-employer pension schemes not to disclose pension
scheme assets and liabilities. Accordingly, although this scheme is a defined benefit scheme it is treated as a defined contribution
scheme, recognising the contributions payable in each period in the income statement. Under the terms of the scheme the scheme
deficit is recovered through increased contributions from participating members. At the period end, the Group was unable to obtain
a valuation of the industry scheme’s full surplus or deficit. The Group was also unable to obtain details concerning the future funding
requirements, and its participation level relative to the other participants. Contributions charged to the income statement amounted
to £1.0m (2016: £0.9m) and expected contribution to this scheme for the financial period 2018 is £1.0m.
(ii) Defined contribution schemes
The Company launched a Group Personal Pension Plan in April 2006. Contributions made by employees are matched by the Company
to an upper limit. The assets of the scheme are held separately from those of the Company and are invested by Royal London.
Contributions for the period amounted to £1.1m (2016: £1.2m).
In addition, the Group operates defined contribution pension schemes for subsidiary companies in Belgium and the Netherlands.
The Group makes contributions into the schemes, the assets of which are held separately from those of the Group and are invested
by local insurance companies. The contributions by the Group into individual company schemes for the period were a net charge of
£0.1m (2016: £0.1m) and there were no contributions to industry collective schemes (2016: nil).
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Financial statements continued
Notes to the financial statements continued
23. Financial instruments
(i) Financial risk management objectives and policies
Risk management
The Group’s principal financial instruments comprise borrowings and overdrafts, cash and cash equivalents. These financial instruments
are used to manage funding and liquidity requirements. Other financial instruments which arise directly from the Group’s operations include
trade receivables and payables.
Exposure to credit, liquidity, foreign currency exchange and interest rate risks arise in the normal course of the Group’s business operations
and each of these risks is managed in accordance with the Group’s treasury risk management strategy, which is also discussed in the
Financial Review in the section Current liquidity.
(a) Credit risk
The Group does not have significant concentrations of credit risk as exposure is spread over a number of counterparties and customers.
The Group is exposed to a small amount of credit risk that is primarily attributable to its trade and other receivables, the majority of which
relates to retail customer products held ready for collection (see note 15). Retail customers are required to settle outstanding balances in
cash or using a major credit card prior to goods being collected from/delivered by the store.
The credit risk on liquid funds is limited because the counterparties are reputable banks. The maximum amount of credit risk is represented
by the carrying amounts of financial assets.
(b) Liquidity risk
The Group finances its operations from a mix of retained profits and bank borrowings achieved through revolving credit agreements
and overdraft facilities. Daily cash balances are forecast and surplus cash is placed on treasury deposit with the Group’s bankers.
The table below summarises the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments,
including interest:
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over
5 years
£m
20.4
0.3
69.0
89.7
7.3
0.3
73.5
81.1
25.5
0.2
64.7
90.4
12.0
0.2
68.6
80.8
–
0.3
–
0.3
–
0.3
–
0.3
–
0.2
–
0.2
–
0.2
–
0.2
–
0.8
–
0.8
–
0.8
–
0.8
–
0.5
–
0.5
–
0.6
–
0.6
–
3.7
–
3.7
–
4.0
–
4.0
–
0.6
–
0.6
–
0.7
–
0.7
Total
£m
20.4
5.1
69.0
94.5
7.3
5.4
73.5
86.2
25.5
1.5
64.7
91.7
12.0
1.7
68.6
82.3
Group
At 29 April 2017
Interest bearing loans and borrowings
Finance leases
Trade and other payables
At 30 April 2016
Interest bearing loans and borrowings
Finance leases
Trade and other payables
Company
At 29 April 2017
Interest bearing loans and borrowings
Finance leases
Trade and other payables
At 30 April 2016
Interest bearing loans and borrowings
Finance leases
Trade and other payables
94 | Annual report and accounts 2017
94 | Annual Report and Accounts 2017
23. Financial instruments continued
The Group has committed facilities to July 2019 comprising a £45.0m revolving credit facility. The Group also has uncommitted overdraft
facilities of £7.5m in the UK which are renewable annually in October and €2.4m in the Rest of Europe. The undrawn amounts on the
committed facilities were £32.0m (2016: £45.0m). The undrawn amounts on the uncommitted facilities were £0.4m and €2.4m (2016:
£0.4m and €2.4m).
There are a number of covenants which commit the Group to maintaining certain rates of leverage and fixed charge cover. The Group
has and is expected to remain in compliance with these covenants; further details on this can be found on pages 23 and 25 of the
Strategic Report.
(c) Foreign exchange risk
Outside the UK, the Group operates in the Netherlands, Belgium and the Republic of Ireland and had cash balances in Poland. Revenues
and expenses of these operations are denominated in Euros or Zlotys. The Group mitigates currency risk in respect of the net investment
in European operations by designating Euro denominated borrowings as hedging instruments of Euro denominated investments in foreign
operations.
If the closing Sterling Euro rate had been 0.01 points lower in the period, the exchange difference reported in the statement of
comprehensive income would have been £0.3m lower (2016: £0.3m lower). At 29 April 2017, if Sterling had weakened/strengthened
by 10% against the Euro, profit after tax for the period would have been £0.3m higher/lower as a result of the translation of the Euro
denominated businesses.
Financial assets and liabilities and foreign operations are translated at the following rates of exchange:
Average rate
Closing rate
Euro
2017
1.20
1.19
Euro
2016
1.36
1.28
Zloty
2017
5.21
5.01
Zloty
2016
5.77
5.62
(d) Interest rate risk
The Group has various borrowings bearing interest at a margin over LIBOR or EURIBOR rates.
In accordance with IFRS 7, the Group has undertaken sensitivity analysis on its financial instruments which are affected by changes
in interest rates. This analysis has been prepared on the basis of a constant amount of net debt and a constant ratio of fixed to floating
interest rates as at 29 April 2017 and 30 April 2016 respectively. Consequently, analysis relates to the situation at those dates and is
not representative of the periods then ended.
Based on the Group’s net debt position at the period end, a 1% change in interest rates would affect the Group’s profit before tax
by approximately £0.1m (2016: £0.1m).
The interest rate profile of the financial assets and liabilities of the Group is as follows:
2017
2016
Weighted
average
effective
interest
rate
%
0.2%
–
–
–
1.8%
–
Floating
rate
£m
8.9
2.8
0.8
12.5
(20.4)
–
Fixed
rate
£m
–
–
–
–
(2.0)
(0.1)
Interest
free
£m
6.2
7.8
–
14.0
(58.8)
(10.2)
Weighted
average
effective
interest
rate
%
0.1
–
–
–
0.5
–
Total
£m
15.1
10.6
0.8
26.5
(81.2)
(10.3)
Floating
rate
£m
5.4
2.2
0.7
8.3
(7.3)
–
Fixed
rate
£m
–
–
–
–
(2.1)
(0.2)
Interest
free
£m
4.4
5.0
–
9.4
(62.9)
(10.6)
Total
£m
9.8
7.2
0.7
17.7
(72.3)
(10.8)
–
(20.4)
(2.1)
(69.0)
(91.5)
–
(7.3)
(2.3)
(73.5)
(83.1)
Sterling
Euro
Zloty
Total financial assets
Sterling
Euro
Total financial
liabilities
Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and retain financial flexibility in
order to continue to provide returns for shareholders and benefits for other stakeholders. The Group considers capital to be equity and net
debt. Net debt is disclosed in note 29.
The Group manages its capital by: continued focus on free cash flow generation; setting the level of capital expenditure and dividend in
the context of the current period and forecast free cash flow; and monitoring the level of the Group’s financial and leasehold debt in the
context of Group performance.
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Financial statements continued
Notes to the financial statements continued
23. Financial instruments continued
(ii) Fair value of financial assets and liabilities
Financial assets and liabilities are classified in accordance with IAS 39. Financial instruments have not been reclassified or derecognised in
the period. There are no financial assets which have been pledged or held as collateral. The Group does not have any financial assets or
liabilities measured at fair value through the income statement. There are no available-for-sale financial assets.
The carrying values of all other financial assets and liabilities are deemed to reflect fair value.
At cost:
Cash and cash equivalents
Loans and receivables at amortised cost:
Trade and other receivables
Total financial assets
Financial liabilities at amortised cost:
Borrowings and overdrafts
Finance lease obligations
Financial liabilities at cost:
Trade and other payables
Total financial liabilities
Net financial liabilities
Group
Company
2017
Fair value
£m
2016
Fair value
£m
2017
Fair value
£m
2016
Fair value
£m
12.5
14.0
26.5
(20.1)
(2.2)
(69.3)
(91.6)
8.3
9.3
5.5
9.4
17.7
48.1
57.4
47.7
53.2
(7.1)
(2.3)
(73.7)
(83.1)
(20.1)
(1.1)
(70.1)
(91.3)
(7.1)
(1.2)
(73.5)
(81.8)
(65.1)
(65.4)
(33.9)
(28.6)
(iii) Hedge accounting
Net investment hedges
Euro-denominated facilities are designated as hedging instruments of Euro-denominated net assets of the Group’s foreign operations
in order to protect the Group from currency risk in respect of the Group’s Euro-denominated foreign operations. Borrowing balances
are carried at amortised cost which approximates fair value since borrowings bear interest at the prevailing floating rate.
24. Share capital
Group and Company
At 2 May 2015
Issue of new shares
Purchase of own shares – employee benefit trust
At 30 April 2016
Issue of new shares
Purchase of own shares – employee benefit trust
At 29 April 2017
Number
of allotted,
called up and
fully paid
ordinary
shares
Millions
67.8
0.1
–
67.9
–
–
67.9
Share capital
£m
0.7
–
–
0.7
–
–
0.7
Share
premium
£m
17.4
0.4
–
17.8
–
–
17.8
Treasury
shares
£m
(0.4)
–
(0.9)
(1.3)
–
(0.3)
(1.6)
Total
£m
17.7
0.4
(0.9)
17.2
–
(0.3)
16.9
The Group’s LTIP was established to grant contingent rights to shares. Such grants are made on recommendation by the Group’s
Remuneration Committee. Shares are purchased by a Trust and held until they are used to satisfy the LTIP awards. As required by IAS
32, grants of such shares are classified as Treasury shares and accordingly are deducted from total equity attributable to equity holders of
the parent. During the period, the Trust purchased 156,358 ordinary shares (2016: 157,450 shares purchased). At the period end, the
Trust held 365,248 (2016: 208,890) ordinary shares of 1p each with a market value of £0.8m (2016: £0.7m).
The Group also operates a share option scheme under which shares are issued to satisfy share options upon exercise.
96 | Annual report and accounts 2017
96 | Annual Report and Accounts 2017
25. Share based payments
Included within separately reported items is a charge of £1.0m (2016: charge of £1.0m) in respect of equity-settled share based payments.
The Group’s employee share schemes are described below and additional detail is disclosed in the Directors’ remuneration report on
pages 49 to 50, scheme participants are either Directors of the Company or employees of the Group. The costs associated with the
schemes are accounted for in the Company’s accounts.
(i) LTIP
Under this scheme, participants may receive annual awards in the form of contingent entitlements to Company shares. These entitlements
are equity-settled through the purchase of existing shares by the administering Trust. The shares vest three years after award if participants
remain with the Group during the vesting period and the Group meets targeted levels of performance. The performance conditions are fully
described in the Directors’ remuneration report in the section titled Long-term incentives.
During the period, contingent entitlements to 1,186,812 shares were granted (2016: 488,816). The amount recognised in the income
statement in respect of all LTIP awards is a charge of £0.2m (2016: charge of £0.8m). The fair values of the awards, where there is no
market condition, are valued using a Black-Scholes option pricing model. The Group’s LTIP Trust is administered by Equity Trust (Jersey)
Limited and waives its right to dividends on the shares held.
Reconciliation of movements in the 52 week period ended 29 April 2017
Outstanding at 2 May 2015
Granted
Expired/lapsed
Outstanding at 30 April 2016
Granted
Forfeited
Expired/lapsed
Outstanding at 29 April 2017
Exercisable at 29 April 2017
Exercisable at 30 April 2016
LTIP Sept 2016
Share
awards
‘000s
Fair
value
£m
–
1,186.8
(53.4)
–
1,133.4
–
–
–
2.7
(0.1)
–
2.6
–
–
LTIP July 2015
Share
awards
‘000s
–
488.8
(32.6)
456.2
–
(19.8)
–
436.4
Fair
value
£m
–
2.7
(0.2)
2.5
–
(0.1)
–
2.4
LTIP July 2014
Share
awards
‘000s
398.6
–
(33.0)
365.6
–
–
–
365.6
Fair
value
£m
2.1
–
(0.1)
2.0
–
–
–
2.0
LTIP Jan 2014
Share
awards
‘000s
302.5
–
(34.0)
268.5
–
(1.8)
–
266.7
Fair
value
£m
1.1
–
(0.2)
0.9
–
–
–
0.9
–
–
–
–
–
–
–
–
–
–
–
–
The valuation assumptions used in the application of the Black-Scholes model applied to the relevant schemes above are as follows:
Valuation assumptions
Fair value per share (pence)
Share price at grant (pence)
Exercise price (pence)
Expected volatility (%)1
Vesting period (years)
Dividend yield (%)
Risk free interest rate (%)
LTIP Sept
2016 award
231
241
0.0
38.5
3.0
0.0
1.6
LTIP July
2015 award
560
577
0.0
32.4
3.0
0.0
1.0
LTIP July
2014 award
524
525.5
0.0
33.4
3.0
0.0
1.5
LTIP Jan
2014 award
504
506
0.0
35.1
3.0
0.0
1.0
1. Expected volatility is based on historical volatility over the three year period preceding the date of grant. The risk free interest rate is the yield on zero-coupon UK
government bonds at the date of grant of the respective awards over a term consistent with the vesting period.
(ii) Savings Related Share Option Scheme (“SAYE”)
The Group operates three and five year SAYE schemes. Employees and Executive Directors are invited to subscribe for options over
shares in the Company at a 20% discount to market price. The options are ordinarily exercisable within six months from the third or fifth
anniversary of the grant date. The entitlement to share options is equity-settled. Funds for the purchase of Company shares are built up
through the contribution of a maximum of £500 (2016: £500) per month from salary. Share options were valued using a Black-Scholes
option-pricing model. The cost charged to the income statement in respect of this scheme is £0.8m (2016: £0.2m).
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Financial statements continued
Notes to the financial statements continued
25. Share based payments continued
Reconciliation of movements in the period ended 29 April 2017
SAYE 2017
3 yr
Number
of options
‘000s
5 yr
Number
of options
‘000s
SAYE 2016
3 yr
Number
of options
‘000s
5 yr
Number
of options
‘000s
SAYE 2015
3 yr
Number
of options
‘000s
5 yr
Number
of options
‘000s
SAYE 2014
3 yr
Number
of options
‘000s
5 yr
Number
of options
‘000s
SAYE 2013
3 yr
Number
of options
‘000s
5 yr
Number
of options
‘000s
SAYE
2012
SAYE
2011
5 yr
Number
of options
‘000s
5 yr
Number
of options
‘000s
Outstanding at
2 May 2015
Granted
Forfeited
Vested
Outstanding at
30 April 2016
Granted
Forfeited
Vested
Outstanding at
29 April 2017
Exercisable at
29 April 2017
Exercisable at
30 April 2016
–
–
–
–
–
–
–
–
–
197.3
–
–
–
–
487.6 3,264.3
–
(24.2)
–
–
197.3
–
(146.7)
–
–
39.5
–
–
39.5
–
(29.4)
–
757.8
–
(208.4)
(0.9)
548.5
–
(467.3)
–
158.8
–
(24.2)
–
134.6
–
(91.4)
–
128.2
–
(24.0)
–
104.2
–
(63.1)
–
24.7
–
(3.0)
–
21.7
–
(14.7)
–
463.4 3,264.3
50.6
10.1
81.2
43.2
41.1
7.0
–
–
–
–
–
–
–
–
–
–
–
–
41.1
–
–
–
34.0
–
(8.7)
–
25.3
–
(25.3)
–
–
–
8.6
–
(2.5)
–
6.1
–
(3.3)
–
8.3
–
(2.1)
–
6.2
–
(4.4)
–
2.8
1.8
2.8
1.8
6.1
–
(1.8)
–
4.3
–
(4.3)
–
–
–
25.3
–
–
4.3
The valuation assumptions used in the application of the Black-Scholes model applied to the relevant schemes above are as follows:
Valuation assumptions
Fair value per share (pence)
Share price at grant (pence)
Exercise price (pence)
Expected volatility (%)1
Vesting period (years)
Dividend yield (%)
Risk free interest rate (%)
Possibility of ceasing employment before
vesting (%)
SAYE 2013
3 yr
5yr
178
446
356
SAYE 2017
3yr
62
162
130
43.2
3.0
–
0.3
SAYE 2015
3yr
148
446
347
SAYE 2016
3yr
148
446
356
SAYE
2011
SAYE 2014
5 yr
3 yr
5yr
67
298
165
792
505
162
130
634
404
37.3 34.3 34.7 31.5 34.8 33.7 34.8 34.7 39.1 44.1 39.9
5.1
3.1
2.3
–
2.4
0.3
SAYE
2012
5 yr
5 yr
201 248 339 231
505 679 679 529
404 544 554 423
5 yr
184
446
347
5.1
–
4.9
5.1
–
0.8
3.1
–
2.9
5.1
2.3
2.9
5.1
–
0.8
3.1
–
0.5
5.1
–
1.0
3.1
–
0.7
5.0
–
0.6
5 yr
40
50
40
50
40
50
40
50
40
40
50
50
1. Expected volatility is based on historical volatility over the three or five year period respectively preceding the date of grant. The risk free interest rate is the yield on zero-
coupon UK government bonds at the date of grant of the respective awards over a term consistent with the vesting period.
(iii) All Employee Share Ownership Plan (“AESOP”)
Carpetright operated an Employee Share Ownership Plan under which employees could contribute up to £125 per month from pre-tax
salary to purchase Carpetright shares. The scheme was closed on 12 January 2015 as there were fewer than 50 active participants.
The Group does not incur a share based payment charge in respect of this scheme since the Company shares have been acquired
at market value and are not subject to an accumulation period.
98 | Annual report and accounts 2017
98 | Annual Report and Accounts 2017
26. Capital and other financial commitments
Capital commitments at 29 April 2017 contracted for but not yet incurred are:
Store equipment
Intangibles
Group
2017
£m
3.4
0.2
3.6
Group
2016
£m
–
–
–
Company
2017
£m
0.2
0.2
0.4
Company
2016
£m
–
–
–
27. Operating lease commitments
At 29 April 2017, the future minimum lease payments in respect of land and buildings and other assets under operating leases are:
Group
Operating leases payable:
Amounts payable within one year
Amounts payable between one and five years
Amounts payable after five years
Company
Operating leases payable:
Amounts payable within one year
Amounts payable between one and five years
Amounts payable after five years
2017
2016
Land and
buildings
£m
Other
£m
Land and
buildings
£m
79.6
263.5
188.8
531.9
2.2
3.3
–
5.5
81.1
281.4
236.8
599.3
2017
2016
Land and
buildings
£m
Other
£m
Land and
buildings
£m
71.9
245.1
176.6
493.6
1.9
2.9
–
4.8
74.3
266.1
225.5
565.9
Other
£m
1.4
2.5
–
3.9
Other
£m
1.1
2.1
–
3.2
The Group’s operating leases have an average remaining length of 3 years (2016: 5 years). The Group enters into sublease agreements in
respect of some of its operating leases for stores. At the reporting date, the Group had contracted with tenants for future minimum
operating sublease receipts amounting to £8.5m (2016: £8.4m).
28. Contingent liabilities
The Group has no material contingent liabilities at 29 April 2017.
The Company’s contingent liabilities derive from guarantees for subsidiaries, which are disclosed in note 29.
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Total
2016
8.3
(7.1)
1.2
–
–
–
(0.1)
(2.2)
(2.3)
Cash
flow
Exchange
differences
Other
non-cash
3.9
0.3
(13.0)
–
(13.0)
0.3
0.3
–
–
–
–
–
–
–
–
–
(0.2)
(0.2)
Total
2017
12.5
(7.1)
5.4
(13.0)
–
(13.0)
(0.1)
(2.1)
(2.2)
(1.1)
(8.8)
0.3
(0.2)
(9.8)
Total
2015
7.3
(4.4)
2.9
–
(0.1)
(2.3)
(2.4)
Cash flow
Exchange
differences
Other
non-cash
(2.1)
0.4
–
–
0.2
0.2
–
–
–
–
–
–
–
(0.1)
(0.1)
Total
2016
8.3
(7.1)
1.2
–
–
–
(0.1)
(2.2)
(2.3)
0.5
(1.9)
0.4
(0.1)
(1.1)
Financial statements continued
Notes to the financial statements continued
29. Net (debt)/cash
Group £m
Current assets:
Cash and cash equivalents in the balance sheet
Bank overdraft
Cash and cash equivalents in the cash flow statement
Current liabilities:
Current borrowing
Non – Current borrowing
Obligations under finance leases:
Current obligations under finance leases
Non-current obligations under finance leases
Derivative financial instruments
Total net (debt)/cash
Group £m
Current assets:
Cash and cash equivalents in the balance sheet
Bank overdraft
Cash and cash equivalents in the cash flow statement
Current liabilities:
Current borrowing
Non – Current borrowing
Obligations under finance leases:
Current obligations under finance leases
Non-current obligations under finance leases
Derivative financial instruments
Total net (debt)/cash
100 | Annual report and accounts 2017
100 | Annual Report and Accounts 2017
30. Related parties
Group
The Group considers key management to be the Executive Directors only, details of directors’ emoluments and share based payments are
disclosed on pages 52 to 57 of the Directors’ report.
Costs incurred by the Group to administer pension schemes amounted to £0.3m in 2017 (2016: £0.2m).
Company
The following table provides the total amount of transactions and year end balances with related parties for the relevant financial year.
Subsidiary undertakings
2017
2016
A full list of subsidiaries is detailed in note 13.
Sales of
goods
£m
Provision
of services
£m
Amounts due
from related
parties
£m
Amounts due
to related
parties
£m
Total
£m
1.1
1.5
0.6
0.6
1.7
2.1
41.7
42.9
9.6
9.1
The Company guarantees bank and other borrowings of subsidiary undertakings. At the period-end there were nil drawn borrowings
(2016: nil).
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Financial statements continued
Group five-year financial summary
Summarised income statements:
Revenue
Gross profit
Operating profit/(loss)
Underlying operating profit
Net finance costs
Underlying profit before tax
Separately reported items
Profit/(loss) before tax
Tax
Profit/(loss) for the financial period
Extracts from balance sheets:
Non-current assets
Net assets
Operating cash flows
Net cash/(debt)
Ratios and statistics:
Number of stores at period end
Total space (sq ft – gross) ‘000
Gross margin (%)
Underlying operating margin (%)
Operating margin (%)
Underlying earnings per share (pence)
Basic earnings/(losses) per share (pence)
2017
£m
2016
£m
2015
£m
2014
£m
2013
£m
457.6
269.4
2.9
16.4
(2.0)
14.4
(13.5)
0.9
(0.2)
0.7
176.9
78.0
7.7
(9.8)
564
5,051
58.9%
3.6%
0.6%
16.4p
1.0p
456.8
274.2
14.8
20.3
(2.0)
18.3
(5.5)
12.8
(2.7)
10.1
169.0
74.0
13.3
(1.1)
572
5,150
60.0%
4.4%
3.2%
20.8p
14.9p
469.8
287.2
8.2
15.8
(1.6)
14.2
(7.6)
6.6
(2.1)
4.5
171.4
59.5
25.1
0.5
597
5,444
61.1%
3.4%
1.7%
15.5p
6.7p
447.7
275.9
(4.9)
6.9
(2.3)
4.6
(11.8)
(7.2)
3.6
(3.6)
185.4
61.1
11.3
(11.1)
614
5,630
61.6%
1.5%
(1.1%)
4.7p
(5.3p)
457.6
278.3
(3.4)
11.4
(1.7)
9.7
(14.8)
(5.1)
(1.5)
(6.6)
193.0
65.3
17.4
(10.2)
620
5,719
60.8%
2.5%
(0.7%)
9.6p
(9.8p)
102 | Annual report and accounts 2017
102 | Annual Report and Accounts 2017
Independent auditors’ report
to the members of Carpetright plc
Report on the financial statements
Our opinion
In our opinion:
− Carpetright plc’s group financial statements and company financial
statements (the “financial statements”) give a true and fair view of
the state of the group’s and of the company’s affairs as at 29 April
2017 and of the group’s profit and the group’s and the company’s
cash flows for the 52 week period (the “period”) then ended;
− the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
− the company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union and
as applied in accordance with the provisions of the Companies
Act 2006; and
− the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
group financial statements, Article 4 of the IAS Regulation.
What we have audited
The financial statements, included within the Annual Report and
Accounts (the “Annual Report”), comprise:
− the Group and Company Balance sheets as at 29 April 2017;
− the Consolidated income statement and Consolidated statement
of comprehensive income for the period then ended;
− the Group and Company Statements of cash flow for the period
then ended;
− the Group and Company Statements of changes in equity for the
period then ended; and
− the notes to the financial statements, which include a summary
of significant accounting policies and other explanatory information.
Certain required disclosures have been presented elsewhere in the
Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is IFRSs as adopted by the
European Union, and applicable law and, as regards the company
financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
Our audit approach
Overview
Materiality
– Overall Group materiality: £2.3m, which represents 0.5% of Group revenues.
Audit scope
– We performed a full scope audit of the UK and Republic of Ireland segments which accounted for
85% of the Group revenues and 57% of the Group’s profit.
Areas of
focus
– Valuation of goodwill in Europe (The Netherlands and Belgium).
– Impairment of freehold and long-leasehold properties (Europe and UK).
– Impairment of store assets and onerous leases.
The scope of our audit and our areas of focus
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular,
we looked at where the directors made subjective judgments, for example in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of
management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of
material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified
as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide
an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this
context. This is not a complete list of all risks identified by our audit.
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Financial statements continued
Independent auditors’ report to the members of Carpetright plc continued
Area of focus
How our audit addressed the area of focus
Valuation of goodwill in Europe (the Netherlands and
Belgium)
Refer to Note 1 (Accounting policies and Critical accounting
estimates and judgments), Note 10 (Intangible assets) and to the
Audit Committee Report on page 37.
Goodwill is valued at £53.6m at the period end. No goodwill
impairment charge has been recorded against this balance in the
current period.
We focused on the risk that the goodwill balance may be overstated
and that an impairment charge may be required.
The lowest level at which the directors monitor goodwill is the “UK”,
defined as the UK and the Republic of Ireland, and “Europe”, defined
as the Netherlands and Belgium. Therefore these have been
identified as the cash-generating units (“CGU’s”). The Group’s
goodwill in the UK is £29.8m and in Europe it is £23.8m at the
period end.
We focused on valuation of goodwill in Europe in particular because
of the historical trading performance in this CGU and because of the
judgment required in the impairment assessment.
The assumptions made by the directors in the annual impairment
review included:
− the growth and operating margin within the five year plan as applied
to each CGU;
− the Group discount rate (pre-tax 7.8%); and
− the long-term sales and operating profit growth in line with the
floorings markets in the UK and in Europe.
We tested the value-in-use models, including comparing the
forecasts used in them to the latest five year plan approved by the
Board, and testing the underlying calculations. No material
exceptions were noted.
We challenged the directors’ key assumptions, in particular:
− the sales growth and margin improvement plans by comparing
these assumptions to recent results for Netherlands and Belgium
and to third party analysts’ reports, market data, the general state
of the economy and anticipated growth, to assess their
reasonableness.
− the long-term growth rate by comparing the assumptions to the
retail sector as a whole and forecasts for the wider economy; and
− the discount rate used by assessing the cost of capital for the
business. The discount rate used in the directors’ impairment
models of 7.8% (pre-tax discount rate) is within the range that we
independently estimated based on market data and analysis of
comparable companies.
We performed sensitivity analyses, for the assumptions specified
above to identify the extent to which these needed to change to
result in a material impairment charge.
Based on our knowledge of the business and of the retail industry
amongst other factors, we considered the likelihood for changes of
the required magnitude in the key assumptions to result in a
material impairment to be relatively low. We also considered that
the disclosure made in the financial statements regarding the
assumptions and the sensitivities drew appropriate attention to the
more significant areas of judgment.
Impairment of freehold and long-leasehold properties
(Europe and UK)
Refer to Note 1 (Accounting policies and Critical accounting
estimates and judgments), Note 11 (Property, plant and equipment)
and to the Audit Committee Report on page 35.
We tested the directors’ assessment of impairment triggers
and were satisfied that it appropriately took into account both
internal and external impairment indicators, including the trading
performance of each cash generating unit (“CGU”) and
market conditions.
The Group owns freehold and long-leasehold stores in the UK and in
Europe. We focused on the risk that the carrying value of the
properties, including the fixed assets attributable to these stores,
may be overstated and that an impairment charge may be required.
In determining whether impairment triggers existed at the period
end, the directors treat each store as a separate cash-generating
unit (“CGU”) and valued it at the higher of the value in use
calculations or the market value of the properties and their assets.
The value-in-use calculations are based on a five year perpetuity
model using the growth assumptions within the five year plan as
applied to each store, with the resulting cash flows discounted at
the Group discount rate (pre-tax 7.8%).
When properties are subdivided and sublet to third parties, the
sublet income is taken into account in the model.
The fair values are taken from third party valuations carried out
by an independent valuer in November 2014; these valuations
are based on market value assuming a ten year sale and
leaseback arrangement.
We assessed the third party valuations based on our
understanding of the UK and European commercial property
market and an independent analysis performed by our property
valuation experts to confirm that the main assumptions used in
the estimation of the market value were still valid and updated.
Our analysis found that there had been a slight deterioration in the
commercial property market from December 2014 to April 2017.
We sensitised the Impairment model based on this deterioration
and no material impairments were noted.
We found the methodology to be appropriate for fair value and
the valuation to be reasonable at the period end.
We tested the value-in-use models, including comparing the
forecasts used in them to the latest five year plan approved by
the Board, and tested the underlying calculations. No material
exceptions were noted.
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104 | Annual Report and Accounts 2017
Area of focus
How our audit addressed the area of focus
This review resulted in an impairment reversal of £2.2m in the
current period.
We focused on this area because of the size of the underlying assets
and because of the significant judgment required in determining the
value in use of each store, particularly regarding the sales and
operating margins growth rates, and discount rates.
We challenged the directors’ key assumptions, in particular:
− the sales growth and margin improvement plans by comparing
these assumptions to recent results for the Group and to third
party analysts’ reports, market data, the general state of the
economy and anticipated growth, to assess their reasonableness;
− the long-term growth rate by comparing the assumptions to the
retail sector as a whole and forecasts of the wider economy; and
− the discount rate by assessing the cost of capital for the Group.
The discount rate used in the directors’ impairment models of
7.8% (pre-tax discount rate) is within the range that we
independently estimated based on market data and analysis
of comparable companies.
We performed sensitivity analysis and noted that in order for
a material impairment charge to arise, the key assumptions
specified above would need to change significantly. Based on
our knowledge of the business and of the retail industry amongst
other factors, we considered that the likelihood for such changes
in the key assumptions to be relatively low.
Impairment of store assets and onerous leases
Refer to Note 1 (Accounting policies and Critical accounting
estimates and judgments), Note 11 (Property, plant and equipment),
Note 20 (Provisions for liabilities and charges) and to the Audit
Committee Report on page 35.
The Group operates a number of short leasehold stores. The assets
relating to these stores mainly comprise leasehold improvements
and fixtures and fittings. These are considered for impairment
annually by reviewing loss making stores. For all stores where the
loss in the year exceeded a specified threshold, the store assets
were fully impaired (£0.4m impairment).
Furthermore, consideration was given to leases where the stores
have been closed or are loss-making to the extent that they cannot
cover their unavoidable property costs and are therefore classified as
onerous leases.
An analysis is performed on a store-by-store basis of the excess of
the Net Present Value (“NPV”) of forecast unavoidable property costs
(rents, rates and service charges) over the forecast earnings before
interest, taxation, depreciation, amortisation, rents, rates and service
charges (“EBITDAR”).
The NPV is calculated using the growth assumptions within the five
year plan as applied to each store, with the resulting cash flows
discounted at the risk free rate.
This analysis is then assessed for other factors such as performance
improvement plans potential property deals or closure of nearby
stores which should positively impact the poorer performing store.
This amount is then extrapolated over an appropriate period which
ranges from three years to the end of the lease depending on the
individual circumstances of the store.
A provision of £17.5m was held at the period end for the
onerous leases.
We tested the directors’ assessment of impairment triggers for the
store assets. We challenged the key assumptions – namely that
stores making a loss below a certain threshold are excluded from
the model as directors’ view is that, as an improvement plan is in
place and given the level of loss at these stores they are not
permanently impaired.
The potential impairment if all stores were included is not material
and, therefore, there is minimal judgment in the impairment
calculation resulting from this assumption.
With respect to the provision for onerous leases, we checked
that stores assessed for onerous leases are those that were
identified, and whose assets were impaired, following the store
impairment review.
We tested the NPV models, including comparing the forecasts
included to the latest five year plan approved by the Board,
and testing the underlying calculations. No material exceptions
were noted.
The provision also takes into account management’s best estimate
as to the timeframe required to exit each loss-making store which
is clearly judgmental. The provision takes into account other
factors, such as potential property transactions. We assessed
these judgments, including agreeing to the underlying third party
draft contracts where appropriate.
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Financial statements continued
Independent auditors’ report to the members of Carpetright plc continued
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the geographic structure of the Group, the accounting processes and controls, and the industry in which the
Group operates.
The Group is structured across two segments, being the UK and Rest of Europe, with the majority of trading occurring in the UK segment.
The Rest of Europe segment comprises three reporting units, being the Republic of Ireland, the Netherlands and Belgium.
In establishing the overall approach to the Group audit, we identified that the UK segment and the Republic of Ireland reporting units
required an audit of their complete financial information as they form part of Carpetright plc Company. This was performed by the Group
audit team.
The Group team assessed the appropriateness, completeness and accuracy of group journals and other adjustments performed on the
consolidation and obtained an understanding of internal control environment related to the financial reporting process. For the Netherlands
and Belgium reporting units, which were not individually significant to the Group, the Group audit team have performed audit procedures on
a number of judgmental areas. These include testing the onerous lease provision and impairment testing of goodwill, freehold and long
leasehold properties and store assets.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and on the financial statements as a whole.
Based on our professional judgment, we determined materiality for the financial statements as a whole as follows:
Overall Group materiality
How we determined it
Rationale for benchmark applied Consistent with the prior period, we have used revenues as a benchmark given the high level of fixed
£2.3m (2016: £2.3m).
0.5% of Group revenues.
costs in the business and because a small fluctuation in revenue can result in a significant fluctuation of
profit before tax. Revenue is also the primary measure used by the shareholders in assessing the
performance of the Group and reporting to the stakeholders.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.1m (2016: £0.1m)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’ statement, set out on page 25, in relation to going concern. We have
nothing to report having performed our review.
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the
directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements.
We have nothing material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the
financial statements. The going concern basis presumes that the Group and company have adequate resources to remain in operation,
and that the directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit
we have concluded that the directors’ use of the going concern basis is appropriate. However, because not all future events or conditions
can be predicted, these statements are not a guarantee as to the Group’s and company’s ability to continue as a going concern.
106 | Annual report and accounts 2017
106 | Annual Report and Accounts 2017
Other required reporting
Consistency of other information and compliance with applicable requirements
Companies Act 2006 opinions
In our opinion, based on the work undertaken in the course of the audit:
− The information given in the Strategic Report and the Directors’ Report for the financial period for which the financial statements are prepared
is consistent with the financial statements; and
− The Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In addition, in light of the knowledge and understanding of the group, the company and their environment obtained in the course of the
audit, we are required to report if we have identified any material misstatements in the Strategic Report and the Directors’ Report. We have
nothing to report in this respect.
ISAs (UK & Ireland) reporting
Under ISAs (UK & Ireland) we are required to report to you if, in our opinion:
– Information in the Annual Report is:
– materially inconsistent with the information in the audited financial statements; or
– apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and
company acquired in the course of performing our audit; or
– otherwise misleading.
– The statement given by the directors on page 32, in accordance with provision C.1.1 of the UK Corporate
Governance Code (the “Code”), that they consider the Annual Report taken as a whole to be fair, balanced
and understandable and provides the information necessary for members to assess the Group’s and
company’s position and performance, business model and strategy is materially inconsistent with our
knowledge of the Group and company acquired in the course of performing our audit
We have no
exceptions
to report.
We have no
exceptions
to report.
– The section of the Annual Report on page 35 ot 38, as required by provision C.3.8 of the Code, describing
the work of the Audit Committee does not appropriately address matters communicated by us to the
Audit Committee
We have no
exceptions
to report.
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency
or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to:
– The directors’ confirmation on pages 24 and 32 of the Annual Report, in accordance with provision C.2.1 of
the Code, that they have carried out a robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance, solvency or liquidity..
– The disclosures in the Annual Report that describe those risks and explain how they are being managed
or mitigated.
– The directors’ explanation on page 25 of the Annual Report, in accordance with provision C.2.2 of the Code,
as to how they have assessed the prospects of the Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions.
We have nothing
material to add or
to draw attention to.
We have nothing
material to add or
to draw attention to.
We have nothing
material to add or
to draw attention to.
Under the Listing Rules we are required to review the directors’ statement that they have carried out a robust assessment of the principal
risks facing the Group and the directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements; checking
that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with
the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
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Financial statements continued
Independent auditors’ report to the members of Carpetright plc continued
Adequacy of accounting records and information and explanations received
Under the Companies Act 2006 we are required to report to you if, in our opinion:
− we have not received all the information and explanations we require for our audit; or
− adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches
not visited by us; or
− the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Directors’ remuneration
Directors’ remuneration report – Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by
law are not made. We have no exceptions to report arising from this responsibility.
Corporate governance statement
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to ten further provisions
of the Code. We have nothing to report having performed our review.
Responsibilities for the financial statements and the audit
Our responsibilities and those of the Directors
As explained more fully in the Statement of directors’ responsibilities in respect of the financial statements set out on pages 62 to 63, the
directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
What an audit of financial statements involves
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
− whether the accounting policies are appropriate to the Group’s and the company’s circumstances and have been consistently applied and
adequately disclosed;
− the reasonableness of significant accounting estimates made by the directors; and
− the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors’ judgments against available evidence, forming our own judgments,
and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a
reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive
procedures or a combination of both.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report. With respect to the Strategic Report and Directors’ Report, we consider
whether those reports include the disclosures required by applicable legal requirements.
Julian Jenkins (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
26 June 2017
108 | Annual report and accounts 2017
108 | Annual Report and Accounts 2017
Strategic report
Directors’ report
Financial statements
Shareholder information
Shareholder information
Calendar
2017
Annual General Meeting
First-half trading update
First-half ends
Interim results announcement
2018
Q3 trading update
Pre-close trading update
Year ends
Advisers
Financial advisers
Deutsche Bank AG
1 Great Winchester Street
London
EC2N 2DB
Solicitors
Travers Smith LLP
10 Snow Hill
London
EC1A 2AL
7 September
24 October
28 October
12 December
23 January
24 April
28 April
Registrars
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZY
Company secretary and
registered office
Jeremy Sampson
Carpetright plc
Purfleet Bypass
Purfleet
Essex
RM19 1TT
Telephone: 01708 802000
Registered in England & Wales with number
2294875
Stockbrokers
Deutsche Bank AG
1 Great Winchester Street
London
EC2N 2DB
Peel Hunt
111 Old Broad Street
London
EC2N 1PH
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and
Statutory Auditors
1 Embankment Place
London
WC2N 6RH
Bankers
National Westminster Bank plc
Tooting Branch
30 Tooting High Street
London
SW17 0RG
This Report is printed on Image Indigo
uncoated paper.
It is produced at a mill that is certified with
ISO 14001 and EU Ecolabel environmental
standards. The paper is also Elemental
Chlorine Free and FSC® Certified.
Printed at Principal Colour Ltd, ISO 14001
and FSC® certified.
Designed and produced by Black Sun Plc
www.blacksunplc.com
www.carpetright.plc.uk |
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Carpetright plc
Purfleet Bypass
Purfleet, Essex RM19 1TT
Telephone +44 (0)1708 802000
www.carpetright.co.uk
www.carpetright.plc.uk